“Phony Fiduciaries” – How can you tell real from imitation?

phonyRecently 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!

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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