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What Is the Difference Between the Broker-Dealer Standard of Conduct and the Fiduciary Oath?

When it comes to retirement planning, it can be tough to know where to start. For many of us, the subject seems overwhelming and full of unfamiliar terms. For example, do you know the difference between the broker-dealer's "general obligation" clause and a “fiduciary's oath” as a fiduciary financial advisor? If you said no, you’re not alone.

Although it can be confusing, people planning for retirement should understand the important differences between types of financial advisors, how they are regulated, and their required ethical standards. There have been some recent changes to the laws concerning financial advisors and the advice they give, so let’s get you up to speed.

Regulation Best Interest: The Broker-Dealer Standard of Conduct

On June 5, 2019, the Securities and Exchange Commission (SEC) adopted Regulation Best Interest: The Broker-Dealer Standard of Conduct (Reg BI) which sets new rules for broker-dealers and investment advisors.

The Reg BI standard boils down to one key “general obligation” - broker-dealers must act in the best interest of their clients – not their own or the company’s. To fulfill the general requirement, brokers must comply with four more specific obligations:

  • Disclosure - Provide disclosures before or at the time of any recommendation
  • Care - Use “reasonable diligence, care, and skill” to make any recommendation
  • Conflict of interest - Establish, maintain and enforce policies reasonably designed to address conflicts of interest
  • Compliance - Establish policies and procedures to comply with Reg BI

Overall, the “best interest” clause of Reg BI’s general obligation is an improvement over the previous “suitability obligation” standard. Before these rules, broker-dealers’ investment offerings had to be merely “suitable” for customers in terms of goals, risk tolerance, age, etc.

The Long-Running Debate Over Ethical Standards for Financial Advisors

Although the new Reg BI rules represent an enhanced standard of care, it is still considered to be less stringent than the required fiduciary duty of other advisers (like a CPA) to its customers. Historically, broker-dealers and registered investment advisory firms have operated under different standards of ethical conduct - and that has not changed.

The Department of Labor recently attempted to even things out by proposing a single “fiduciary standard” for all financial advisors. The legislation went into effect (briefly) in June 2017 before being revoked in 2018, but serves as evidence of the long-running debate over ethical standards.

As the Department of Labor’s fiduciary rule came and went, some say Reg BI will serve as an alternate solution. But for everyday folks who are just trying to save for the future, the question remains – how can I know who to trust with my investment plans for retirement?

The Fiduciary Standard Keeps Clients’ Interests at Heart

The fiduciary standard is generally considered the highest ethical standard for financial advisors. An advisor with fiduciary responsibility is legally obliged to work on your behalf at all times in all transactions.

Anyone who follows the National Association of Personal Financial Advisors (NAPFA) Fiduciary Oath has vowed to:

  • Not accept any referral fees or compensation contingent upon the purchase or sale of a financial product
  • Always act in good faith and with candor
  • Be proactive in disclosing any conflicts of interest that may impact a client

Given all the different types of financial advisors and with regulations in flux, finding an advisor you trust is more important than ever. A fee-only fiduciary financial advisor is your best bet for making sure your financial advisor has your best interests in mind.

A Fee-only, Fiduciary Financial Advisor, with, the Certified Financial Planner (CFP®️) designation indicates that an adviser has achieved the industry’s gold standard of training, and meets all requirements in the categories of education, experience, examination, and ethics. The CFP®️ Code of Ethics and Rules of Conduct (effective June 2020) also requires CFP®️ professionals to act as a fiduciary at all times.

The Takeaway

When you have the right financial advisor at your side, retirement planning brings as much peace of mind as it does financial benefit. Having your financial advisor sign a Fiduciary Oath can help to ensure that they’re going to be looking out for your best interests so you can have the retirement you planned for.

2020 Denver Retirement Guide


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