Great article from Minyanville discussing the fiduciary standard, which I have been hyping for weeks now. Here is the meat from the article:
The distinction between a fiduciary and a broker is simple. The broker mainly owes his allegiance to the company and is generally compensated by selling you financial products. A fiduciary’s model is typically to place the client’s best interests before their own and they typically don’t charge a commission.
Current laws give you little guidance and protection. Chances are, your financial adviser is not a fiduciary. There are more than 630,000 registered representatives in the US, brokering everything from mutual funds to variable annuities. Among the biggest brokerage
houses in the US are Merrill Lynch (BAC), Wells Fargo (WFC), and Morgan Stanley Smith Barney, which is owned by Morgan Stanley (MS) and Citigroup (C). The vast majority of the folks at these firms are broker-dealers who are paid commissions on certain products they sell.
Registered investment advisers and certified financial planners, in contrast, are nearly all fiduciaries. Since there’s only about 60,000 authorized certified financial planners and about 11,000 registered investment advisers, you really have to search them out.
Will Washington protect Main Street or cave to Wall Street? The House version of the bill, which has already passed, delved into the fiduciary question in some detail. It laid out definitions as to who should be a fiduciary and attempted to bring many financial advisers under that umbrella.
But it’s less clear what the Senate will do. Senate Banking Committee Chairman Christopher Dodd’s original template for reform took up the fiduciary issue, but it has since withered as the financial services
lobbyists worked against it. Banks, brokers, and insurers are generally against making their representatives fiduciaries. Not only would it involve more training, it would create more liability for them if their customers are sold unsuitable products.
Hopefully, more mainstream press will pick up on this issue.