Is Your Financial Professional Working in Your Best Interest?


When deciding who to invest with it’s important to understand your personal needs and objectives, there are many different types of investment professionals. If you are looking to invest in the securities markets, you will most likely deal with an investment adviser or broker-dealer. Both help you invest your hard earned cash but their duties and standard of care are very different.

A broker-dealer is a person or company that sells investment products and completes securities transactions. All broker-dealers must register with both the Securities and Exchange Commission and the Financial Industry Regulatory Authority (FINRA). The individual registered representative (RR) or broker that works for the broker-dealer must pass series 7 and series 63 examinations in order to obtain a license to sell securities. Brokers are also obligated to register with FINRA. Generally, brokers are paid on commission for every securities transaction they complete. Although brokers execute trades and make investment recommendations, at the end of the day, they are sales people and their loyalty lies with their broker-dealer and not necessarily the client.

A broker’s standard of care is based on “suitability.” This means that your broker only needs to have a reasonable basis to believe that a specific investment product or series of trades is suitable for you. Brokers determine suitability by reviewing your investment objectives, risk tolerance, financial situation, and other information that you disclose. It is your broker’s duty to recommend suitable investment products. Unfortunately, that doesn’t always mean that those recommendations are in your best interests. Since brokers are paid on commission they often have incentive to sell certain investments over another. As long as an investment recommendation is “suitable,” your broker can recommend an investment that will garner a higher commission over a similar product that would have cost you less. It’s easy to see where conflicts of interest can develop between brokers and their clients.

A registered investment advisor (RIA) is an individual or company that provides tailored investment advice and makes investment recommendations for a fee. In addition, some investment advisers manage investment portfolios, and many conduct analyses or reports on securities. Typically, RIAs are paid a fixed fee or a percentage of the assets they manage. However, depending on the services they provide they may charge an hourly fee for time they spend working with you. All RIAs have to pass the Uniform Registered Investment Adviser Law Exam, known as the series 65, and register with the state securities regulator. There is no self-regulatory agency that oversees RIAs. If the RIA manages $100 million or more in client assets, than they are required to register with the SEC.

RIAs are held to a higher standard than broker-dealers. They are held to “fiduciary” standards, this means they have a legal obligation to put your best interests above their own, as well as provide suitable investment advice. RIAs are expected to recommend the best investment products for you. For example, RIAs are prohibited from recommending stock that they have purchased for their own account or recommending a more costly product that would generate them a higher fee.

Many investors assume that their broker is looking out for their best interest when that is not necessarily the case. Regardless of who you choose to do business with, whether it is a broker or an investment advisor, it is crucial to your financial protection that you are working with a registered company or individual. If you have a complaint or dispute with your investment professional, you may not be afforded the legal right of suitability or fiduciary duty. It is important that every investor take the time to make sure the registration of their financial professional is current.

D. Daxton White is the managing partner of The White Law Group, LLC, a national securities fraud, securities arbitration, and investor protection law firm. He has represented investors in virtually every U.S state and litigated over 500 FINRA arbitration claims. Find out more about White at He tweets at @SecuritiesAtty and can be found on Facebook here.

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