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March 12, 2011

Fiduciary standard

Starting in the late 1990’s, a battle has intensified.  It took an extensive study (Read Rand) of the financial services industries to realize people do not understand the different roles and responsibilities of service providers. 

Registered Investment Advisers and Broker-Dealers are regulated under two different federal statutes.  The insurance industry is regulated by the individual states and is not covered by either of the federal statutes.  Broker-Dealers are held to a lower standard an do not want to be held to the fiduciary standard on Registered Investment Advisers. 

One argument that has been presented is that the if both groups are held to a fiduciary duty, the term fiduciary should be redefined.  Some argue the fiduciary standard is too subjective.  Many think they know a fiduciary duty when they see it.  Some summarize it by saying it is putting the interest of the client first.  What are the things that might violate this standard?  Would receiving a bonus, a higher commission or otherwise personally benefiting from the transaction be putting the clients’ interest first?  Would not fully disclosing additional fees, costs, etc. or lower returns for features that make the service or product more attractive be putting the client’s interest first?  Would not fully disclosing fees, costs, reduced returns for cancelling the service or product be putting clients’ first?  Would not fully understanding the product or service or the consequences of the product or service be putting the clients’ interest first?

Until these issues are resolved, you must ask questions.  Read the mandatory disclosures known as form ADV.  Do not assume that

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