Daily Law Group
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Is your financial advisor actually a broker posing as an advisor?

You may know that a financial advisor is someone you hire to help you manage your assets—someone who picks investments that are right for you. Advisors are fiduciaries, meaning they have a legal responsibility to act in your best interest.

Brokers, on the other hand, are salespeople. Their bottom line is to sell stocks, bonds and other financial products. They are not fiduciaries. Instead, they are held to the Financial Industry Regulatory Authority (FINRA) suitability rule. This rule states that brokers must deal fairly with their customers. The products they sell must be appropriate for the client, but they don’t have to be the best option for the client. In addition, it’s acceptable for a broker to have a conflict of interest in the products they sell.

So far, this may sound pretty straightforward. If you want a fiduciary to help you with your finances, then you find a financial advisor, right? Unfortunately, it’s not quite that simple. In recent years, many brokers have begun selling themselves as financial planners—which is misleading—and calling themselves “advisors” instead of “brokers.”

Now you’ve got two fundamentally different professions posing as one and the same. How do you make sure you’re getting an advisor who has a fiduciary duty to do what’s best for you? Here are three things to find out from any potential new advisor:

  • Request a copy of their ADV form, which can—among other things—disclose any conflicts of interest.
  • Ask about how they get paid. A registered investment advisor should be paid virtually entirely from clients. Brokers can earn through commissions, bonuses and other fees.
  • Ask whether they are legally required to always act in your best interest. If they do claim to have this fiduciary duty, get it in writing.

Seeking outside help in your own financial management can be daunting. It’s important to take steps to ensure that the person you entrust with your money is working first and foremost for your benefit.

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