85% of advisors are commissioned broker-dealers not required to act solely in your best interest!
If you think your broker has your fiduciary back covered...think again! Only RIAs (Registered Investment Advisors) are bound by law to put their client's' interest ahead of their own.
"We have a system today where anybody can hold themselves out as an expert. They call themselves retirement planners, financial planners, advisers, etc. We don't have a standard way that the consumer can figure out who has the expertise to provide advice."
Phyllis Borzi Assistant Secretary of Labor Employee Benefits Security Administration
Source: Frontline's The Retirement Gamble
Fiduciary Standard: Registered Investment Advisors Most plan sponsors and their employees participating in their company's 401(k) plan don't understand the two very different rules under which financial advisors operate.
RIAs Defined
Registered Investment Advisors (RIA) or an ERISA appointed Fiduciary must operate under the "Fiduciary Standard," which is:
Put the client's best interest first.
Act with prudence; that is, with the skill, diligence and good judgment of a professional.
Do not mislead clients; provide full and fair disclosure of all important facts.
Avoid conflicts of interest.
Fully disclose and fairly manage, in the client's favor, unavoidable conflicts.
The Investment Advisers Act of 1940 defines a “Registered Investment Advisor” as: “a person or firm that, for compensation, is engaged in the act of providing advice, making recommendations, issuing reports or furnishing analyses on securities, either directly or through publications.” Advisors provide advice and recommendations, and are paid a fee (that is not at all associated with the investments chosen).
Suitability Standard:Broker-Dealers, Insurance salespersons, etc.
Broker dealers, insurance salespersons or any other financial company representative operate under the "Suitability Standard," which is:
Know your client and their financial situation.
Recommend products that are suitable for their situation.
Broker-dealers only need to determine that an investment is suitable for the client but not necessarily in the client's best interest.
The Suitability Standard does not set standards around conflicts of interest or a need to place clients’ interests before one’s own.
Brokers Defined
The Securities Exchange Act of 1934 defines “Broker” as: “any person engaged in the business of effecting transactions in securities for the account of others.” Brokers are paid via commissions tied to investments in the funds they select for their client’s retirement plans.