by
Badgley Phelps
| Mar 10, 2017
When it comes to your finances, seeking out advisers who have a fiduciary duty – a responsibility to act in the best interest of their clients and adhere to this duty with loyalty and care – is critical to making sure you’re getting
unbiased advice. Investment advisers registered with the U.S. Securities and Exchange Commission like Badgley Phelps are regulated under the Investment Advisers Act of 1940 and overseen by the SEC. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. The 1940 Act requires investment advisers to adopt
and implement codes of conduct to, for instance, eliminate as many conflicts of interest as possible, disclose any remaining conflicts, and be a fiduciary when giving you financial advice.
investment advisers vs. brokers
By contrast, broker-dealers and their registered representatives are regulated primarily by the Financial Industry Regulatory Authority, or FINRA, which is a self-regulatory body made up of and funded by brokerage firms. Due to an exception in the 1940
Act, broker-dealers are exempt from the fiduciary standard. Instead, brokers operate under the suitability standard which requires that their recommendations be suitable for a client but not necessarily in the client’s best interest. For example,
the suitability standard allows a higher-commission investment product to be sold when the same or similar product is available at a lower-commission.
Investment professionals can also go by a variety of different titles including wealth adviser, financial adviser, and investment consultant. There is little regulation on which title an investment professional can use. For example, someone with the title
of “financial adviser” could be an investment adviser operating under a fiduciary duty or a registered representative of a broker-dealer only subject to a suitability standard, making it difficult for the investing public to
distinguish between the two. To assist the public, the U.S. Securities and Exchange Commission has provided
a searchable database for investors.
Switching hats with dual registration
Today, many financial advisers serve as both investment advisers and brokers - estimates are that greater than 75 percent of all investment adviser representatives are also registered brokers. In addition, there are designations, such as the Certified
Financial Planner™ professional or CFP® certificant, which require its members to act as fiduciaries during a financial planning engagement. However, a dually registered CFP® certificant that is also a broker-dealer
can still “switch hats” and give non-fiduciary advice regarding investment products that fall outside the financial planning engagement. In this situation, the adviser’s fiduciary responsibility is limited and depends on which hat
they are wearing when advising you. Yes, it can be confusing. The key to making sure you’re getting unbiased advice is to know that your adviser is a fiduciary and advising you in a fiduciary capacity.
A new rule from the Department of Labor (DOL) requires that any professional giving advice on retirement assets (401ks, IRAs, etc.) act as a fiduciary for those accounts regardless of their registration status. As of this writing, the original effective
date of April 10, 2017 has been extended by sixty days and the implementation of this new rule is unclear.
At Badgley Phelps we think all clients should receive objective, unbiased advice delivered by a competent wealth manager who is required to put the client’s interests ahead of their own.
How do I know if my adviser is a fiduciary?
Here are some questions to ask your current or prospective adviser:
Need some help finding an investment advisor? Contact us today.
This blog was originally published on March 10, 2017.