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Not All Financial Professionals Are Required To Put Their Clients’ Interests First


Over the past few years, Congress has been debating the merits of whether brokers, insurance agents and investment advisors should be held to the same professional standard or if they should be allowed to continue operating under different sets of standards.

This raises a question:  Did you know that not all financial professionals are required to put their clients’ interests first?

Brokers and insurance agents are required to recommend products that are appropriate and suitable for each client, but they are not required to research alternatives to recommend what is in the best interest of each client.

Recent surveys indicate that the majority of investors do not understand that different professionals are held to different standards. Many consumers assume all financial professionals must adhere to a fiduciary standard of care and advice.

So what’s the difference between a broker’s “suitability” standard and the investment advisor’s “fiduciary” standard?

Let’s say you want to buy an automobile. You want something that gets at least 25 mpg and costs no more than $30,000. OK, there are likely many models from many manufacturers that will fit those two requirements and, as such, are suitable for you. However, most consumers would want to drill down beyond those two attributes.

Which model has the best safety record? Which has the best maintenance and repair record? Which holds the highest value after three years? Which handles the road better? These questions go beyond whether something merely satisfies your initial wants and desires; they go beyond the mere suitability of your purchase.

There may not be a clear-cut winner. Nonetheless, there is a difference between narrowing down the choices to “among the best” versus what is merely “suitable.”

So what should you do if you’re unsure of whether your advisor is a fiduciary?

It’s simple. Ask him or her. If the answer is yes, then ask if he or she is your fiduciary 100 percent of the time or if there are some transactions that fall under the suitability standard. Bring up compensation, and ask if there are any conflicts of interest that you should know about. Ask “Is there any possible way you can make more money selling one product versus selling another product?”

We know these can be uncomfortable questions to ask, but good advisors will recognize that this is an important topic and should bend over backwards to explain how it affects you. If they don’t, head for the door.

For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.