adopt and implement, with appropriate guidance, the uniform fiduciary standard of conduct for broker-dealers and investment advisers when providing personalized investment advice about securities to retail customers." The standard, according to the study, should be "no less stringent than currently applied to investment advisers under Advisers Act." SEC Makes Attempts to Adopt a Uniform Fiduciary StandardĪ Securities and Exchange Commission (SEC) staff study on a Uniform Fiduciary Standard of Conduct for Broker-Dealers and Investment Advisers recommended: When a financial advisor lauds their financial expertise to garner a client’s business and clients rely upon these representations, a fiduciary relationship may be formed whether in a typical “non-discretionary” brokerage account or a fee-based investment advisory account. The suitability standard requires brokers to have a “reasonable basis to believe a recommended transaction or investment strategy involving a security or securities is suitable for the customer.” suitability is a much lower standard to be held to when selling an investment.įor many years stockbrokers have held themselves out as “financial advisors” to their clients. Stockbrokers on the other hand are only subject to a suitability standard as required by FINRA Rule 2111.
They have a fundamental obligation to act in the best interest of their clients and owe clients a duty of loyalty and good faith at the time of making investment recommendations. As fiduciaries, registered investment advisors are held to a higher standard when it comes to making recommendations to clients. Registered Investment Advisors are fiduciaries as required by §275.204A-1 the Investment Advisers Act of 1940.
FIDUCIARY STANDARD ACCOUNTS PROFESSIONAL
Because investors may not have the time, information or market sophistication to fully understand today’s complex financial products understanding the different standards applicable to the professional they are working with is essential. This lack of understanding can result in investors relying on what their brokers tell them believing that they are held to a higher fiduciary standard to their detriment. Many retail investors today are unclear about the roles played by brokerage firms and registered investment advisors and the impact of the different standards that apply to each.
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