An obligation to put clients’ interests first doesn’t guarantee that financial advisers will do the right thing
Years ago, my team left a large brokerage firm for the greener pastures of a fee-only registered investment adviser. While soliciting a client to follow, I explained that RIAs are fiduciaries, obligated to put the interests of their clients first.
Brokers are required only to recommend “suitable” investments, I said, adding that advisers from my old shop could be held to either the fiduciary standard or the lesser standard of suitability, depending on the situation.
It was, I now understand, the wrong way to ask a client to follow me.
“I thought you always put my interests first,” the client said, visibly annoyed.
His anger spotlights broad problems with the regulatory framework governing wealth management. It is confusing to clients and financial advisers, too. The distinctions between suitability and fiduciary duty are out of sync with client expectations, and uneven requirements are enforced unevenly by multiple watchdogs.
In this byzantine tangle, the fiduciary standard is often seen as providing better protection for investors. But the regulatory oversight of fiduciaries is infrequent by some measures and no guarantee that fiduciaries will behave like, well, fiduciaries.