- MENU
- HOME
- SEARCH
- WORLD
- MAIN
- AFRICA
- ASIA
- BALKANS
- EUROPE
- LATIN AMERICA
- MIDDLE EAST
- United Kingdom
- United States
- Argentina
- Australia
- Austria
- Benelux
- Brazil
- Canada
- China
- France
- Germany
- Greece
- Hungary
- India
- Indonesia
- Ireland
- Israel
- Italy
- Japan
- Korea
- Mexico
- New Zealand
- Pakistan
- Philippines
- Poland
- Russia
- South Africa
- Spain
- Taiwan
- Turkey
- USA
- BUSINESS
- WEALTH
- STOCKS
- TECH
- HEALTH
- LIFESTYLE
- ENTERTAINMENT
- SPORTS
- RSS
- Investing
Mark Miller
Financial advisers come in an alphabet soup of designations -- CFPs, CPAs, CLUs, CFAs -- and they're all very happy to advise you. You can find advisers working for big brokerage companies, banks, insurance companies and small independent firms.
But there really are just two types of financial advisers: those who -- by law -- work for their clients, and those who really don't. The legal litmus test is called fiduciary duty, which means that the adviser is obligated to put the best interest of the client ahead of all else.
That distinction is at the heart of an important debate heating up in
The Investor Protection Act of 2009 would affect everything from credit cards and mortgage regulation to derivatives trading, and it would create a new federal agency to protect consumers from the worst abuses. But an especially interesting provision of the bill would subject Wall Street brokers to fiduciary standards, and give the
Here's the current landscape:
Stockbrokers and broker-dealer representatives don't have fiduciary duty; neither do the financial product salespeople working at banks or insurance companies. They are self-regulated by the
"I've tried to find a definition and the best I can find is 'reasonable,'" says Sheryl Garrett, founder of a network of fee-only advisers that bears her name. "But the investment only has to be reasonable at the moment it is made -- not next week or next year. And the definition doesn't cover where the money that's being invested came from. I've seen situations where advisers talked clients into taking money out of a safe, government-insured defined benefit pension and putting that into a risky variable annuity. That can fall within the definition of reasonable."
None of which is to say that you can't get perfectly sound advice from a non-fiduciary adviser. Brokers who bill themselves as investment advisers may well provide good counsel. But it's important to be mindful of the possibility of divided loyalty and conflict of interest.
Advisers who have fiduciary responsibility to you as a client are Registered Investment Advisers (RIA). The one exception to that is in California, where brokers also have legal fiduciary responsibility, although many advisers and consumers aren't aware of this.
These advisers usually are independent or work for small firms, and they're regulated by the
Many investors don't understand -- or don't care -- about the difference. A study conducted last year for the
The current structure of the financial services industry has also tended to blur the lines, with the emergence of financial superstores that offer both advisory and portfolio management services through different divisions.
The
This reform would have big implications for the way sales-driven advisory services are run, and -- if signed into law -- it will be good for consumers. Watching the proposal run the gamut through
Investor Protection Act Would Shake Up Financial Adviser Duties
© Mark Miller
CAREERS | INVESTING | PERSONAL FINANCE | REAL ESTATE