Here’s a surprise: Your financial advisor may not be operating with your best interests at heart.
That was the finding from a report released Wednesday by the Consumer Federation of America, a Washington, D. C.-based consumer advocacy group. The organization looked at 25 major brokerage firms and insurance companies.
The report said while brokerage firms and insurance companies call their professionals \u00ab\u00a0financial advisors,\u00a0\u00bb these individuals often are actually sales representatives who pitch mutual funds, annuities and insurance products.
\u00ab\u00a0The firms know what sells to the public,\u00a0\u00bb said Barbara Roper, director of investor protection at the CFA and a co-author of the report.
\u00ab\u00a0They know if they want to attract business, they have to portray themselves as fiduciary advisors,\u00a0\u00bb she said.
The Department of Labor is set to roll out a rule on April 10 that would require broker-dealers and financial advisors to offer advice putting the client’s best interests first when giving guidance about retirement accounts such as IRAs. The regulation does not apply to regular brokerage investment accounts.
\u00ab\u00a0SIFMA has long supported a best interest standard for broker-dealers across all retail investment accounts, not just retirement accounts,\u00a0\u00bb wrote Kenneth E. Bentsen, president and CEO of the Securities Industry and Financial Markets Association, a New York and Washington, D. C.-based organization that represents broker-dealers and banks, in an email.
\u00ab\u00a0We continue to believe that the Securities and Exchange Commission, not the DOL, is the agency to create a best-interest standard to protect retail investors, and we will continue to advocate to make that happen,\u00a0\u00bb he wrote.
The report said broker-dealers and insurance companies tout financial planning and investment advice on their websites that’s based on the particular needs of the client.
However, Roper said, industry lobbyists who represent these firms took a different tack by suing to block the fiduciary rule, according to the report.
More than $7 trillion in IRA assets would be subject to the fiduciary regulation. These accounts have been large money makers for financial services firms.
\u00ab\u00a0They call themselves financial advisors and say that it’s all about personalized advice,\u00a0\u00bb Roper said. \u00ab\u00a0But the trade associations go into court and say this isn’t advice at all, that it’s just sales and an arm’s length sales transaction. \u00a0\u00bb
This leaves the investing public confused about their advisors’ real role, she said.
\u00ab\u00a0The ‘report’ fails to acknowledge the fact that the overwhelming majority of our members have been dually registered for decades, therefore working as fiduciaries,\u00a0\u00bb wrote Chris Paulitz, a senior vice president at the Financial Services Institute, a Washington, D. C.-based organization that represents broker-dealers, in an email.
You should familiarize yourself with how your advisor gets paid.
Roper suggests asking your advisor to sign a fiduciary oath which will require him or her to avoid conflicts of interest.
Don’t be afraid to ask whether he or she collects a commission for the sale of mutual funds, annuities and insurance.
\u00ab\u00a0There is nothing inherently wrong with commissions, but it’s about all of the other conflicts,\u00a0\u00bb Roper said. \u00ab\u00a0That includes paying brokers more to sell one product over another and basing bonuses on their success in meeting sales quotas for proprietary products. \u00ab\u00a0<\/p>\n

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