Is Your Advisor Concerned About Conflicts of Interest?

Is Your Advisor Concerned About Conflicts of Interest

When I worked as a nurse at a large hospital, we never got “free lunch”. Pharmaceutical companies never brought us bagels in the morning, no sandwiches and brownies for lunch, no late afternoon coffee and cookie sessions. Why were we denied such innocent “perks of the job”? My institution held their patient’s interest higher than their own and they were concerned for any direct or indirect conflicts of interest. The hospital never wanted a practitioner to be swayed in one direction based upon a personal relationship or incentive.

There are also conflicts of interest that can exist in investment management relationships. Do you want your investment advisor to give you unbiased recommendations that are in your best interests first? Of course you do, a fiduciary has the legal obligation to do so. The definition of a fiduciary means an adviser who works directly for their clients and must document placing clients’ interests ahead of their own.

If an advisor is not acting as a fiduciary, they do not have to give advice that is in your “best interests”. Rather, they follow the Suitability Standard, which requires only that broker-dealers must reasonably believe that any recommendations made are “suitable” for clients. A key distinction in terms of loyalty is important; in that brokers serve the broker-dealers they work for first.

Why non-fiduciary advisors have  conflicts of interest

Non- fiduciary advisors can receive many different forms of compensation. Some recommendations may earn them lavish trips, bonuses, expense reimbursements among many other incentives. They may have a “quota to sell” of a particular product. If it is “suitable” for you, it may be recommended even if it’s not necessarily “the best”. If they recommend moving from one fund to another, this can trigger a commission to be charged. Sometimes, the only way an adviser receives compensation is by recommending to buy or sell funds, in other words to “move money”.
So, if your advisor works for a bank or broker dealer, the types of investment options and services will depend on what the bank or brokerage firm will allow. Nearly all Broker Dealers have production requirements for the Advisory Firm that must be met. The Advisory Firm must sell a certain amount of securities to keep their job with the Broker Dealer.

Why RIAs Do Not have  conflicts of interest

An independent Registered Investment Advisor (RIA) is legally required to work for their clients first. They offer the investments and services that are in their clients’ best interests without constraints.

RIAs receive their compensation from their clients only based on a mutually agreed upon fee. Sometimes it may be an hourly rate for services. More commonly, fiduciary advisers will charge a flat quarterly fee based upon the investment account size. It does not matter what investment are recommended, the advisor’s fee remains level. They can’t accept any incentives from Mutual Funds or other investment companies/products. Their only source of income comes from the client and remains non-conflicted this way.

I agree with my former employer’s stance on conflicts of interest. No one wants to worry that a medical decision could be made without the patient’s best interest placed first. I also believe that when it comes to your investments, the standard should remain the same. My clients’ interests should always be placed ahead of my own. I would love the opportunity to talk more if you have questions about whether a fiduciary adviser could help you make decisions for your financial future.

Ashley Rosser, President

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Wealth Partners in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.

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