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The Name Game

The blurred line between brokers and advisers

Morgan Stanley calls them “Vice President.” At Edward Jones, they’re "investment representatives." A.G. Edwards prefers the title, “Financial Consultants” while Raymond James, Merrill Lynch, and Ameriprise all call them "financial advisers." And lending institutions use titles similar to “Private Bankers” or “Wealth Managers.” Just don't call them brokers.

What's in a name? For consumers, a great deal of confusion and potential for conflict. "Current policies make it impossible for investors to distinguish salespeople from advisers," said Barbara Roper, director of investor protection at the Consumer Federation of America. "They allow brokers to offer advice without a fiduciary duty that places clients' interests first, and they allow brokers to offer advice without adequate disclosure of conflicts of interest."

Registered Investment Advisers are held to a fiduciary standard. By law, a fiduciary will act solely in the best interest of the client. They must fully disclose any conflict, or potential conflict, to the client prior to and throughout a business engagement. Fiduciaries will fully disclose how they are compensated. Stockbrokers and advisors who accept commissions are usually not fiduciaries and may be influenced to act in their own interests.

So how do you know if you are getting financial advice from a real fiduciary?

  1. Ask the advisor if he/she is a fiduciary – do they have a legal obligation to act in your best interest? The term, “advisor” ‘has been twisted and turned so much that consumers are understandably confused. You may believe you are dealing with a fiduciary when you are not.
  2. Look for a “clean” ADV report. Investment advisers are required to provide written disclosures about their qualifications, services, compensation, conflicts of interest, and record of disciplinary actions against them. Read this Form ADV very carefully. Look at how the adviser is paid, any commission relationships and other indications of conflicts of interest that put you in second place.
  3. Beware the tell-tale disclosure of a commissioned financial professional. Look at the ads and brochures of your current or prospective financial professional. SEC rules require stockbrokers and other advisors who are not considered true fiduciaries to disclose that their interests may not always be the same as yours and that they have a conflict of interest. If you see this sort of language in the fine print of their materials, you know that – by definition -- you are NOT dealing with a fiduciary!

It’s hard to find the perfect financial professional who will meet your needs. You deserve an advisor who is competent, qualified, knowledgeable, and is compensated in a manner that minimizes conflicts of interest. But, most importantly, no one should accept or expect anything less than an advisor held to the fiduciary standard of always putting your interests first.

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