Tell the SEC You're Tired of Being Ripped Off

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If you walk into a financial advisor's office, you'd expect that he or she will put your interests first -- ahead of the branch manager's interests, ahead of the firm's interests, ahead of his or her own interests. Furthermore, you'd expect that this isn't just something done out of niceness; the financial advisor would be legally obligated to do what's best for you and you only.

Sadly -- and shockingly -- that's not the case.

Most people who call themselves "financial advisors" or "financial consultants" are not fiduciaries, the big fancy word applied to professionals who are legally obligated to put their clients' interests front and center. Rather, most people in the financial advice biz are really agents of the firm they work for -- you know, the brokers at Bank of America's (NYSE: BAC  ) Merrill Lynch, Wells Fargo (NYSE: WFC  ) , and UBS (NYSE: UBS  ) . They may call themselves "advisors," but within the industry they're legally known as "registered representatives," representing their own interests and those of the firm.

In fact, in most cases, a registered representative (RR) can't be a fiduciary. As explained by W. Scott Simon in an article on, "This has nothing to do with any governmental regulation but to the private contract that each RR agent enters into with its broker-dealer [the firm the RR works for]. That contract legally requires a RR to place the interests of its broker-dealer before the interests of the RR's clients." I hope you're duly flabbergasted.

There's a movement afoot to change this, championed in part by the minority of advisors who think this is wrong. These advisors have themselves become fiduciaries, and they think their colleagues should also be held to a higher standard.

One such person is Sheryl Garrett, founder of the Garrett Planning Network of fee-only advisors. The "fee-only" part means that these advisors are paid by the hour, the project, or as a percentage of assets under management. They get paid the same regardless of the advice they provide, so there are much fewer conflicts of interest, hidden costs, or industry-paid trips to the Caribbean as thanks for putting so many clients in their funds.

In a previous article on, Garrett wrote that the fiduciary standard "requires advisors to put their clients' best interests first; act with prudence; be truthful and forthcoming with all relevant facts; avoid conflicts of interest; and, when conflicts of interest absolutely cannot be avoided, disclose them and manage money in favor of the client." Sounds reasonable, right? So why is Wall Street fighting it?

"It's too expensive to put your interests first"
The SEC is taking comments on whether anyone who dispenses financial advice should be required to be a fiduciary. However, many in the financial-advice biz are pushing back hard (surprise!) -- arguing that, among other things, this will make serving middle America unprofitable; firms will have no choice but to turn them away, leaving most Americans without professional financial advice.

First of all, this has already been happening for years; most firms only want to deal with high-net-worth clients. But the argument is also baloney. So says Ron Rhoades, a lawyer and Certified Financial Planner with Joseph Capital Management, as well as an advocate of the fiduciary standard and the fee-only pay model. In an article on, Rhoades points out that "the broker-dealer community says ... a customer with only $25,000 to invest surely can't be served under an hourly based model. Yet, if that customer were to purchase a mutual fund and pay a 5.75% commission [as is typical with funds purchased from a broker], the customer would pay over $1,400." That's approximately what many clients pay a paid-by-the-hour planner. Furthermore, Rhoades writes, the clients "are not just sold an investment product, but rather they receive all-important financial advice."

In other words, fee-only advisors can make a living serving "middle America" and also provide their clients with a comprehensive financial plan, which may include cash-flow analysis, college planning, retirement planning, insurance analysis, estate-planning needs analysis, as well as investment guidance. If they can do it, so can the big-name Wall Street brokerage houses.

Tell the SEC what you think
Take some time to give the SEC a piece of your mind, especially if you have experience with a broker who you thought was acting in your best interest, only to find out later (the hard way) that was not the case. And if you're looking to get some professional financial advice, seek out a fee-only planner, such as the folks who are part of the Garrett Planning Network or the National Association of Personal Financial Advisors.

Since this article discusses disclosure and such lofty things, we should reveal that The Motley Fool has a partnership with the Garrett Planning Network in which participating planners offer Fool readers a 10% discount. However, The Motley Fool does not receive any payments from the Garrett Planning Network or its members.

Robert Brokamp, CFP®, is the editor of The Motley Fool's Rule Your Retirement newsletter. He owns none of the companies mentioned in this article. The Fool owns shares of Bank of America. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 16, 2010, at 7:57 PM, peters46 wrote:

    What makes you think changing their titles to fiduciary will change their actions. 1. Some of them WILL do poorly, and they will be used as an example that their poor performance has nothing to do with dishonesty. 2. Most will still do exactly what they are told to do by their firms. 3. At best it may encourage two out of 100 to truly act like fiduciaries. 4. At worst, it will encourage clients to actually trust in the 98% who are (still crooks) working against their clients' interests..

  • Report this Comment On December 16, 2010, at 10:30 PM, FlorisHJ wrote:

    @peters46 you are quite cynical, but you have a point.

    I would hope that more disclosure and transparency can indeed lead to individual investors being served by INDEPENDENT financial advisors - yes, let's encourage financial advisors who only do that, advise, and forbid them from actually selling you anytthing.

    If the SEC can somehow sever the link between those that advise and those who sell investments (with much lower fees - essentially discount broker model), and perhaps even hold the advisors accountable for the outcomes (eg. your fees depend on the five year performance of the investments you recommended) I think that would serve the individual investors (for a change).

    I don't think it is very likely though... *sigh* but at Christmas one can make a wish, right?

  • Report this Comment On December 17, 2010, at 12:57 AM, xetn wrote:

    I am more tired of the false security of the SEC, FDIC and the FED and the moral hazard they create. I could go on with a bunch of the other ABC bureaucracies, but maybe you get the picture. The federal government is sucking the life-blood out of the economy while destroying personal freedom (the TSA for example) and I am sick of it all.

  • Report this Comment On December 18, 2010, at 12:18 AM, jomueller1 wrote:

    Sorry to say: So called humans are bad when it comes to money. So I just assume everyone wants my best - my money. My goal is to deny them that satisfaction and I bypass them all.

    During the dot-com bubble I learned that the analysts "opinions" are just that and therefor useless. A financial firm I used was promoting using options to enhance the return on my investment. After 6 months I presented them with a spread sheet showing that their commissions were about 10 times as much as mt benefits. Thanks goodness they went bankrupt!

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