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Argent Wealth Management, Inc. is a Registered Investment Adviser and required to uphold a fiduciary standard in working with our clients under the Investment Advisers Act of 1940. It would be easy (and usually incorrect) to assume based on their titles that the "Financial Consultant", "Financial Adviser", or "Wealth Manager" at your local broker is also held to the same standard. This is generally not the case.
Registered Investment Advisers (RIAs) must register with the Securities and Exchange Commission or State securities department. RIAs have a fiduciary duty to put their clients' best interests first (ahead of their own). If a client feels their best interests have not been taken into account they can take legal action against the RIA for failing to provide a "fiduciary standard of care."
Brokerage firms employ Registered Representatives. Registered Representatives are sales agents and have no fiduciary responsibility to their clients. Their responsibility is to the employer, and their job is to sell products. Although some sales agents also may be RIAs, brokerage firms generally do not want their sales agents to be RIAs because they do not want the fiduciary obligations that RIA registration requires.
On April 6 the SEC, after years of heavy lobbying from the National Association of Securities Dealers (NASD) and Securities Industry Association (SIA) among others, unanimously approved the so-called "Merrill Lynch" rule making permanent the exemption of broker-dealers from the Investment Advisers Act of 1940 and the fiduciary standard in the case of asset-based and fee-based accounts (traditional commission-based brokerage accounts were already exempted). From the SEC ruling summary:
- "A broker-dealer providing advice that is solely incidental to its brokerage services is excepted from the Advisers Act if it charges an asset-based or fixed fee (rather than a commission, mark-up, or mark-down) for its services, provided it makes certain disclosures about the nature of its services."
According to the SEC that disclosure must be prominent and contain language similar to the following:
- “Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.”
Unfortunately a crisp definition of "solely incidental" is not present in the ruling and leaves open the potential for misunderstandings by consumers. Furthermore, the rule continues to allow Registered Representatives to call themselves Financial Advisers, etc. A broker cannot, however, call themselves a financial planner or sell you a financial plan unless they are also registered as an investment adviser.
What does all this mean to you? Buyer beware. Get lots of information before investing - it's your money after all. The Financial Planning Association recommends asking the following questions:
- Is the account that you are offering an "advisory account", or is it a "brokerage account" exempt from investment adviser registration?
- Regarding brokerage accounts, are you required under law to act as a fiduciary by always placing my interests first?
- Are you also a Registered Investment Adviser? If so, how are you going to tell me when you are acting as a sales agent of the brokerage firm and when you are acting as an investment adviser?
- Regarding my brokerage account that I may open, what are the potential conflicts of interest that you have when recommending certain products for sale to me, and how will you disclose these to me prior to purchase, including special cash payments or incentives that you receive?
- Can you provide me with a written disclosure detailing any disciplinary history for you or your firm?
The full SEC ruling can be read at: http://www.sec.gov/rules/final/34-51523.pdf
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