Why There Are Two Standards for Financial Advice


My Sunday Washington Post Business Section column is out. This morning, we look at the various legal standards of care financial advisors must adhere to.

The print version had the full headline Why Two Standards for Financial Advice? while the online version was Find a financial adviser who will put your interests first.

As I have discussed in the past, there is no reason not to put a client’s interest first — unless your goals are to maximize profits to the brokerage firm.

Here’s an excerpt from the column:

“You can buy a Yugo or a Mercedes-Benz. They may both be automobiles, but they vary dramatically.

Regardless, everywhere these cars are sold, they each must meet the same government rules. Safety regulations, crash worthiness standards, fuel economy, consumer warranties, etc., apply equally to both vehicles.

This is decidedly not true of the people who provide you with financial advice. There are two completely different standards for these people — they are governed by two wholly different sets of regulations. The two standards are ‘suitability‘ and ‘fiduciary‘.”

The emails are already pouring in from retail brokers, giving me examples of instances where brokers under the suitability standard did the right thing, put clients first, etc.

And that is my exact point: People who work in this business should not proudly point to instances where the clients were not screwed; rather, not screwing your clients should be the standard operating procedure for those who manage money or provide financial advice.

Hence, why I believe the Fiduciary standard should be the law of the land.



Find a financial adviser who will put your interests first
Barry Ritholtz
Washington Post, October 26 2014   

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