Recently we were part of a webinar in which the presenter indicated that in addition to being a fiduciary, his firm also held a securities license. This juxtaposition of roles just did not sit well with us. It is one thing call yourself a fiduciary, but quite another to actually “be” a fiduciary.
After the webinar was over, we had an email conversation with the presenter regarding his role as a “dual registrant.” His response was as follows:
“I hold a series 65 license and my partner has his 7 and 66. However we both operate as IARs in our RIA which requires the fiduciary duty.”
While this seems to be a legitimate response, it still left us uneasy. We wondered if they still conducted transactions for clients of their RIA and how this plays into their role as a fiduciary if they benefit from a commission or other remuneration every time a client buys one of the investments they sell through the securities license.
In our experience, most “dual registrant” situations are set up in this manner. From the brokerage side, the broker discourages trading away because of monitoring requirements and other compliance issues. Furthermore, trading away usually increases costs for the client. While most brokerages have an RIA, the majority, if not all of trading is conducted through the brokerage firms. This means that these “so-called” fiduciaries actually benefit financially from the transactions.
At Financial Fiduciaries we find this practice to be in poor taste. The bottom line is that if a firm is trading for “fiduciary” clients through their own brokerage firm it is a major conflict of interest. One of the key principles of the Fiduciary Standard is that being a fiduciary requires the advisor to “avoid ALL conflicts of interest.” With that in mind, our biggest recommendation is to do your homework when choosing an advisor. Don’t be afraid to ask them tough questions like:
- How are you compensated?
- Do you accept commission and if so will you itemize how much money you receive from the products you recommend to me?
- Are you held to the fiduciary standard at all times?
- Would you sign a fiduciary oath noting that you will put my best interests first?
If the answer to any of these questions is “no,” consider it a major red flag…and keep looking!