Welcome to Financial Advisor IQ

Some FAs Are Only Part-Time Fiduciaries

February 16, 2017

As long as financial advisors aren’t all held to the fiduciary standard, some advisors will only have to put their clients’ interests first just some of the time, Scott Hanson writes on CNBC.com.

Fee-based advisors who are also licensed to sell on commission essentially wear two hats, according to Hanson, co-CEO of independent RIA Hanson McClain Advisors. As investment advisor reps, they must work under the fiduciary standard, but when acting as representatives of a broker-dealer, they merely need to comply with the suitability standard, he writes.

The problem in such a dual-standard role is that clients of fee-based advisors may not realize that when they agree to buy commission-based investments such as non-traded real estate investment trusts, their advisor no longer has to put their interests first, according to Hanson.

Another problem arises when barred securities brokers get licensed as independent advisors, he writes.

In one particular case such an advisor marketed himself as a fiduciary, but because he was also licensed to peddle insurance, he sold some of his elderly investors indexed annuities that yielded him high commissions and carried large surrender penalties, according to Hanson.

The Department of Labor’s fiduciary rule would require at least all retirement brokers to put clients’ interests ahead of their own, he writes. But a memorandum from President Donald Trump has caused the DOL to seek to delay and review the rule.


And regardless of whether the rule still goes into effect, brokers advising on non-retirement accounts would still only have to operate under the suitability standard, according to Hanson. That puts the onus on investors to screen their advisors and how they are compensated, he writes.

By Alex Padalka
  • To read the CNBC article cited in this story, click here.