Generally speaking, there are two kinds of financial advisers. There are brokers, and there are investment adviser representatives (IARs). Brokers are employed by broker-dealers and operate under the suitability standard. IARs are employed by registered investment adviser firms, regulated by their state or the SEC, and operate under the fiduciary standard. The fiduciary standard states that all recommendations, financial planning advice, or decisions made by the adviser have to put their client’s best interest ahead of their own. However, brokers who operate under the suitability standard can make recommendations where there’s a financial kickback to themselves, so long as it’s suitable to their client, even if it’s not the best option out there. We can liken this to doctors advising healthy foods and exercise to their patients, generally the recommended strategy, or doctors who recommend cheeseburgers and fries to their patients because they’re invested in the success of cheeseburgers and fries. Technically, junk food is still food, it’s just not the best food for the patient’s health.
Last year, the Fiduciary Rule was submitted for approval. Ultimately, this defined the standard by which advisers give recommendations and financial advice to their clients so that all recommendations had to be in a client’s best interest. However, with the new government administration in place, they have delayed the implementation of the Fiduciary Rule. While I personally am an advocate of the Fiduciary Rule, this should bring to light not just political decisions but also the kinds of things investors need to research and watch for when working with a financial adviser.
Read more about the Fiduciary Rule, different kinds of advisers, and how investors can move forward with the Fiduciary Rule delay in Tim’s article for Columbia Daily Tribune.
As a financial planner specializing in comprehensive financial planning, Tim enjoys helping clients in Columbia, MO with managing their taxes, financial risks and other financial issues.
If you would like to learn more about this and other personal financial planning topics serviced by Clarity Financial please contact us at 573-447-7007. Clarity Financial, LLC is a fee-only financial advisory firm in Columbia, MO. Appointments are welcome and initial consultations are free.
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