Regulators (DOL and SEC) have been ‘discussing’ (I use that term loosely) the standard of care that financial advisors provide to clients for well over
five (5) years. The debate over whether a uniform fiduciary standard will be implemented continues and is once again receiving press coverage. Several
advisors have had clients watching and reading news stories on the subject and the clients are seeking a better understanding on the differences between
holding/opening an advisory versus brokerage account.
With the quality and the character of the advisors at IPI, I know that you always do what is in the best interest of your clients first and foremost regardless
of the type of account a client maintains. To assist you with any clients concerns or questions on this issue, I wanted to share with you some information
on fiduciary vs. suitability standards that you can use as talking points with clients. If you have further questions or comments, please let me know.
A Registered Investment Adviser (“RIA”) and its Investment Advisor Representatives (“IARs”) are fiduciaries whose duty is to serve the best interests of
clients; including an obligation not to subordinate clients’ interests to their own (i.e. always put your client first). As a fiduciary, the RIA and
the IAR owe a duty of loyalty and care to clients. An RIA or IAR that has a material conflict of interest must either eliminate that conflict or fully
disclose to clients all of the material facts relating to the conflict. We disclose the conflicts when you provide our ADV2 Brochure and your ADV2B
Brochure to clients.
RIAs and IARs are regulated by the Securities and Exchange Commission (“SEC”).
An important aspect of a broker-dealer’s (“BDs”) and its Registered Representatives (“RRs”) duty of fair dealing is the suitability obligation, which requires
a RR to make recommendations that are consistent with the interests of its customer (i.e. follow the investment objectives and risk tolerance on the
new account form and make sure they are in line with the investments made within the account). A BD/RR has the requirement to provide best execution
for client trades. BDs/RRs are also required to disclose material conflicts of interest to their customers when making a recommendation. As an independent
broker/dealer, IPI does not make recommendations at a firm level on securities. RRs do make recommendations to clients and should (1) disclose to clients
any financial interest in the securities, unless it is nominal, (2) have a reasonable basis for the recommendation and (3) disclose any other material
conflict of interest known.
BDs are members of FINRA, a self-regulatory organization (“SRO”). BDs and RRs are regulated by FINRA and the SEC.
While BDs/RRs are generally not subject to a fiduciary duty under the federal securities laws, courts have found BDs/RRs to have a fiduciary duty under
certain limited circumstances. Moreover, BDs/RRs are subject to statutory, SEC and SRO requirements that are designed to promote business conduct that
protects customers from abusive practices, including practices that may be unethical.