THE "FIDUCIARY" BUZZ WORD
A quick google search demonstrates there is no shortage of investment advisory firms advertising themselves as "fee-only" fiduciaries. And why not? Certainly choosing an investment firm with a commitment to a fiduciary standard of care is a positive for the retail investor. But don't be misled into thinking the fiduciary obligation toward clients is a choice. Registered Investment Advisory firms are required by the Securities and Exchange Commission to "to act in the best interests of your clients and to provide investment advice in your clients’ best interests." [1] The fiduciary duty has long been held in stark contrast to the less stringent suitability standard which regulated recommendations provided by registered representatives who are compensated through commissions on sales of securities and other investment products. But that has recently changed with the passage of new SEC legislation. As of June 30th, 2020, all securities broker-dealers and their associated registered representatives must comply with guidelines enforced under new legislation called Regulation Best Interest. The new guidelines replace the prior suitability standards for recommendations with a new "best interest" standard of care similar to the fiduciary obligation. The new regulations state that financial professionals making recommendations of securities or any investment strategy involving securities, "must act in the best interest of the retail customer at the time the recommendation is made, without placing your financial or other interest ahead of the retail customer’s interests." [2]
At Elmbrook Associates, each of our financial professionals are dually registered as both registered representatives and investment advisor representatives. Dual registration means we are able to offer a greater variety of securities and investment products than our strictly fee-only counterparts. We are also able to offer multiple cost structures including fee-only, commission-based, or a combination designed to deliver the best available value to our clients. Whether working with you in a fiduciary capacity as an investment advisor representative or in a best-interest capacity as a registered representative, you can be sure that our financial professions will provide you with a clear understanding of our professional obligations to you and any potential conflicts of interest that may arise in providing your tailored investment strategy.
RESOURCES
Investment industry regulations grow increasingly more complex every year. Much of the impact of these regulations are completely unknown to the everyday retail investor. You should know there are several free resources available to investors designed to provide transparency around the fees, structure and management of investment firms and their professionals.
Investor.gov/CRS
On June 30th, 2020 the SEC began requiring all register broker-dealers and investment adviser firms to provide the retail investing public with access to an informational document called "Form CRS." This Client Relationship Summary summarizes key information regarding a firms services, fees, conflicts of interest and disciplinary history. The investor.gov/crs website has clear instructions on how to location and view a firm's Form CRS.
BrokerCheck is a free, online database providing information on individual financial professionals and broker/dealer firms. The database is provided by Financial Industry Regulatory Authority, Inc. (FINRA), a private corporation that acts as a self-regulatory organization. It is a non-governmental organization that regulates member brokerage firms and exchange markets. You can find useful information about brokerage firms and their member professionals such as licenses held, years of experience and required disclosures.
Investment Adviser Public Disclosure (IAPD)
Similar to BrokerCheck, the SEC's IAPD database provides the public with information on individual investment adviser representatives and their firms. Investors can also view a firm's Form ADV Part 2 Brochure which provides details including how fees are charged to clients and disclosure of potential conflict of interest.
