A Fiduciary Standard For All Who Render Investment Advice
Whether you are an individual or an institutional investor, it is incumbent upon you to know what standard of care the person giving you advice must abide by. Are they required to put the client’s interest ahead of their own, applying the fiduciary standard, when making recommendations or do they simply have to make suitable recommendations? A study revealed that seventy-six percent of investors believe that “financial advisers” at major brokerage firms are fiduciaries requiring them to put their client’s interest first. The truth is many large firms such as Bank of America’s Merrill Lynch use the term “financial adviser” to describe their retail sales people, who were previously called stockbrokers. Those commissioned brokers are required to make only “suitable” recommendations to their clients based upon their investment objectives, tolerance for risk, age, sophistication, employment status, financial needs and time horizon. On the other hand, most registered investment advisers have an obligation to place the customer’s interest first, abiding by the fiduciary standard.
Under the Dodd-Frank financial reform law, the SEC is to submit a report in January 2011 to Congress on investor protection. The SEC will then be authorized to establish a universal fiduciary standard of care covering everyone who provides personalized investment advice, including brokers, investment advisers, financial planners and insurance agents selling annuities. Such a change would solve some of the confusion for all investors when dealing with people having different titles and indistinguishable services.