For those following the US financial reform efforts, the bill, unveiled esterday, does not include a requirement that brokers adhere to a fiduciary standard.

Key points in this WSJ article for me:

Brokerage-industry lobbying is widely credited with ridding Sen. Christopher Dodd’s (D., Conn.) financial-reform bill, unveiled Monday, of a clause that would have required brokers to adhere to the fiduciary standard and always put clients’ interests first. As things stand, they have a less strict duty to sell clients only what they deem appropriate.
From Canada’s Foundation for the Advancement of Investment Rights (FAIR):

The only Canadian financial professionals who are under fiduciary obligations, whereby they are required to act in … their clients’ best interests, are those registered as portfolio managers with discretionary authority over their clients’ accounts…

FAIR then goes on to say that, “case law has established that other financial advisors can in effect have such an obligation, depending on the knowledge of the client and the past pattern of dealings between client and advisor…”
That’s about as clear as mud to me. Wouldn’t it be fun to write your adviser and ask him or her straight out, “Do you have a fiduciary obligation to act in my best interests?”

Perhaps I’m cynical, but I think it’s naive for investors to expect somebody they’re not paying to always act in their best interests. When I learned about
my mother’s situation, I was angry, but not only towards the advisor. The way I see it, it’s our responsibility as investors to understand the risks that come with “free” advice.

Except, investors are paying — at least indirectly — through the product fees that go toward advisors’ commissions. Not to mention the opportunity cost. Perhaps investors are paying a lot more than they think when it comes to free advice.

Posted in clickworthy

Bruce Freedeman
Mar. 18, 2010

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