Pick Your Protagonist: Finding An Advisor Who Acts In Your Best Interests

Published October 21st, 2020 

Reading Time: 4 minutes

Written by: The Zoe Team

The right qualified wealth planner has your best interest in mind. Brokers often blur the lines between what’s best for you or for them.

If the wealth management world were a movie, the qualified and interest-aligned financial advisor would be the protagonist, while the broker would be their foil. What qualifies a financial advisor to earn the leading role? Well, when a financial advisor is sitting on your side of the table, like a doctor taking an oath, they promise to act in your best interest. Equally important, qualified financial advisors are not selling you a product, they are there to provide sound financial advice. The protagonist is in search of the best outcome, providing holistic advice, while their foil is seeking to achieve their own motive: to sell you a product that’ll earn them a commission.

While a broker can also technically claim to act in your best interest, some find loopholes in the system to get what is in their best interest. An example of these loopholes may occur when a broker tries to get you to sign a best interest contract exemption.

Best Interest Advisors vs. Brokers

An example of an advisor acting in your best interest, such as those in the Zoe Advisor Network, is a Registered Investment Advisor (RIA) whose service revolves around providing sound financial advice rather than selling financial products. RIAs are regulated by the government’s Securities and Exchange Commission (SEC), while brokers self-police by being registered to the Financial Industry Regulatory Authority. Brokers only need to comply with suitability standards. Thus, they can collect a commission for the products they recommend as long as they are also providing “suitable” advice to their clients.

Fiduciary means the advisor is obligated to act in your best interest. 

It’d be nice if potential clients could simply distinguish between an interest-aligned (or fiduciary) advisor and a broker, but those lines are often blurred. There are many financial advisors who play both roles by dually registering. As dually registered entities, known as hybrid advisors, they may have the privileges of acting as both brokers (receiving commissions) and fiduciary financial advisors (receiving fees). An advisor may say they are a “fiduciary,” but new regulations have made it all the more complicated to actually see behind the mask. 

In an interesting plot twist, the SEC appeared to be holding brokers up to the same standards as advisors through the Regulation Best Interest rule, passed in June 2019. The Regulation Best Interest rule was introduced to help everyday investors by tightening the standards for brokers who sell investment products, as well as providing an updated interpretation of the duties of investment advisors. The Best Interest rule provides various stipulations to tighten standards, yet falls short due to its confusing nature regarding the fiduciary rule standard. The New York Times reported that investor advocates worry that even with the rule in place, it can be hard to decipher where loyalties lie.

While an important step toward a happy ending, the new rule suggests that both parties will need to act in the best interest of their client. Yet, how can this be when both sides define “best interest” differently? 

An advisor may see “acting in your best interest” as sharing all information with you due to their fiduciary nature, while a broker might simply ensure you have what they deem “suitable.” This confusion of roles can allow a broker to call themselves a financial advisor but still act as a product salesperson.

Redefining The Meaning Of ‘Best Interest’ 

Along with the Best Interest rule, the SEC’s June 2019 rules passed a portion of its regulatory role to the industry by giving advisors the ability to define how they want to disclose their interests. Essentially it enables advisors to simply provide a relationship summary, in which the SEC expects brokers and advisors to discuss their vested interests and advising fees. In this way, the lack of explicit procedures may make it difficult for the consumer to determine whether the financial advisor they are looking to hire is working in their best interest. 

In the latest update to the SEC Best Interest rule, as of June 30, brokers are now explicitly not allowed to call themselves “advisors.” While yet another step in the right direction, it doesn’t do much to relieve the fact that many advisors and advisory firms are dually registered. In such cases, it can be hard to tell whether your financial advisor is really a fiduciary because as a dually registered advisor, they are able to “switch hats” between being a salesperson and an advisor. 

A hybrid advisor might claim to be a fiduciary, but that doesn’t necessarily mean they’ll be acting in your best interest all the time.

Picking Your Protagonist: An Advisor Who Acts in Your Best Interest

The minimum standards advisors have to meet are what makes their role in this movie unclear. So carefully read the contracts your advisors draw up for you. Make sure you understand that under the SEC’s rules package and the Regulation Best Interest rule, in order to follow the care, disclosure, conflict of interest and compliance obligations, a broker will always need to disclose their relationship with the products they are trying to sell you. That said, many do not do so transparently, particularly if dually registered. To avoid working with an advisor who claims they are a fiduciary but isn’t really working in your best interest, ask them if they are “dually registered.” Search for a financial advisor who clearly discloses how they are paid, as well as how their role is regulated.

Disclosure: This material provided by Zoe Financial is for informational purposes only.  It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Nothing in these materials is intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Zoe Financial is not an accounting firm- clients and prospective clients should consult with their tax professional regarding their specific tax situation. Opinions expressed by Zoe Financial are based on economic or market conditions at the time this material was written.  Economies and markets fluctuate.  Actual economic or market events may turn out differently than anticipated.  Facts presented have been obtained from sources believed to be reliable.  Zoe Financial, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. 

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