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What Your Advisor Isn't Telling You

In theory, brokers are supposed to act in the customer’s best interest

Barbara Roper, director of investor protection for the Consumer Federation of America and a member of the Securities and Exchange Commission's Investor Advisory Committee, discusses what investors should expect from brokers and advisers.

Q: What are the main provisions of the SEC rule for brokers, which goes into effect June 30, 2020?

A: In theory, brokers – firms or individuals in the business of selling securities – are supposed to act in the customer's best interest and are prohibited from placing their interests ahead of the customer's interests. However, the SEC never defines "best interest."

And the rules are virtually identical to how Finra [the Financial Industry Regulatory Authority] interprets its existing standard for brokers to make "suitable" recommendations.

Q: How will brokers handle disclosures and conflicts of interest?

A: They have huge leeway to decide how to comply. They can provide boilerplate, vague disclosures about costs, conflicts of interest and other terms of the client relationship on the front end and delay providing details until after the transaction is complete. Brokers, along with investment advisers, must provide clients with a customer relationship summary (CRS) form, covering topics such as fees and services and stating the legal obligation to act in the investor's best interest.

Q: How are investment advisers affected?

A: There's a new interpretation of existing regulations for investment advisers, who are paid fees to provide advice, as opposed to making sales recommendations. The SEC makes clear that advisers don't have to avoid even easily avoidable conflicts. Disclosure of a conflict is sufficient in virtually all circumstances. There has been a distinction that investment advisers have a fiduciary duty while brokers are subject to a weaker suitability standard. With this rule, both standards are weak, and neither requires your investment professional to do what's best for you.

Q: How can I find an adviser who will act in my best interest?

A: Look for advisers who have structured their businesses to minimize conflicts of interest. You can find them among fee-only financial planners through the National Association of Personal Financial Advisors, As of June 30, 2020, the CFP Board will begin enforcing a new standard that holds certified financial planners to a fiduciary duty for all the financial advice they dispense. Under the current standard, CFPs have a fiduciary duty when they engage in financial planning but not more generally when giving advice. The CFP obligation is stronger than the SEC's standard.

Q: Anything else I can do?

A: Ask the adviser to sign a fiduciary oath (you can download one at It documents the agreed-upon standard of conduct in case you get into a dispute, and it's a way to separate the wheat from the chaff because non-fiduciary advisers won't want to go near it. You can also look for firms with Centre for Fiduciary Excellence certification (CEFEX) at www.cefex.rg. These firms have agreed to adhere to fiduciary best practices and undergo audits to ensure that they are doing so.

Source: Lisa Gerstner, contributing editor to Kiplinger's Personal Finance magazine,

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