10 October 2010|
Are you confused about what kind of advice you’re getting from your insurance agent or investment adviser? A recent survey by the Consumer Federation of America and AARP revealed that investors are confused about who is held to a fiduciary standard, meaning financial professionals are required to put their client’s best interest ahead of their own. Three out of five mistakenly think that insurance agents have a fiduciary duty to their clients, and two out of three incorrectly think that stockbrokers are held to that same fiduciary standard. At the same time, 91 percent think that a stockbroker and a fiduciary adviser should have to follow the same investor protection rules. Ninety-six percent agree that the fiduciary requirement should extend to insurance agents. And, most importantly, 97 percent of those interviewed believe that a financial professional should not only put the client’s best interest before their own, they also should tell clients upfront about any fees, commissions or conflicts of interest that might influence their recommendation.
On July 21, 2010, Pres. Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. This monumental piece of legislation will change the financial regulatory environment dramatically and affect almost every element of the U.S. financial system. This new law also charges the Securities and Exchange Commission to compile a report on creating a universal fiduciary standard for any broker, agent or adviser who gives investment advice. A fiduciary standard for the financial industry would require financial salespeople to put their client’s interest ahead of their own.
Currently, financial brokers and insurance agents who are securities licensed are only held to the Securities Act of 1933, which requires them to make suitable recommendations to an investor based on information available at the time of sale. They are not required to act as a fiduciary to their clients when they make a sales recommendation. They provide education on the merits of a certain product, but they aren’t obligated to provide ongoing advice after you make the purchase. A fiduciary adviser creates a financial plan for each investor and ensures that the client’s goals and objectives are placed ahead of the adviser or respective firm. The two are distinctly different, yet with this Congressional mandate to the SEC, this standard could revolutionize the financial industry.
Investors constantly are misled by salespeople dressed in a fiduciary’s clothing. The survey reveals the blind trust that the majority of investors place in brokers and agents to give them financial advice. The tide is shifting toward a new standard for all financial salespeople. Brokers and agents will no longer be able to hide from a fiduciary standard. This legislation levels the playing field for investors, demystifies fees and commissions for financial products and advice, and most of all, provides independent advice in the client’s best interest to help them achieve their financial goals. As the sea of change potentially permeates through the industry in the coming months, the question to ask is this: Are you dealing with a wolf or a sheep?
|< Prev||Next >|