Rules Vary Among Financial Advisors

Are financial advisors required to put your interests ahead of their own?  It depends on whether they are brokers or investment advisors.  Different rules and laws apply to each even though they sometimes do the same thing.  It’s not always clear which one you’re dealing with.  The duty to put the client’s interests first applies to advisors and is strict in the eyes of the law.  It is a position of trust and requires the advisor to disclose conflicts of interest and to act with a sense of duty to the client.  A broker’s job, on the other hand, is considered transactional (making trades on your behalf) and has a limited set of legal obligations. 

The difference between advisor and broker used to be apparent based on the way each got paid.  Advisors charged a fee for managing your investments. Brokers charged commissions on trades.  Now many brokers receive fee-based compensation and it’s difficult to tell the two apart.  The SEC is aware of the confusion and might recommend a set of rules that apply equally to both advisors and brokers.  In the meantime, you’ll have to closely question the person handling your money.