Perhaps lost in the geopolitical shuffle, the Securities & Exchange Commission (SEC) updated rules concerning the relationship between brokers and their clients this week. The SEC says brokers must act in the investor’s “best interests.”
Sounds great. But what does this mean? Perhaps less than you might think.
For one thing, the SEC’s rules cover broker-dealers. Historically, broker-dealers were regarded as, essentially, salespeople. Brokers were free to recommend any investment product to a customer so long as it was “suitable,” that is, it somehow met the customer’s needs—regardless of the investment’s costs or how much the broker would be paid for selling it.
The SEC’s new rules require brokers to recommend products that are in their clients’ best interests to own. But they don’t strictly define what “best interests” means in practice. Instead, they merely require brokers to disclose any potential conflict to customers. And further, the new rule does not explicitly eliminate all of the pay practices that put a broker’s interests ahead of their investors’.
At Adviser Investments, we’ve never felt that brokerage standards were good enough. As a registered investment adviser, we are held to the highest standard: That of being a fiduciaryA person or organization who manages assets for a third party, and is legally bound to act in the best interests of that third party, putting the third party’s interest before their own.. We’re always required to put a client’s interests before our own, something we’d do even if it wasn’t prescribed. It’s simply the right thing to do.
All of our CERTIFIED FINANCIAL PLANNERTM professionals are also held to the fiduciary standard as well as the CFP Board’s code of ethics—which we think is to the benefit of our clients.
In addition, we work only for you—we receive no commission from the funds we choose to invest in. And we eat our own cooking—Adviser Investments’ retirement savings plan is invested in the same funds found in client portfolios. That means every one of our employees’ interests are aligned with yours. We think that takes the definition of a true fiduciary to an even higher plane.