What is Advice? (Archived Blog)

There is great debate within the financial services industry, regulators and Congress about who should be held to a fiduciary standard (a fiduciary must put client first) and who should be held to the lower suitability standard (what brokers are held to), looking for a way to draw some line somewhere.  This debate often focuses on the ideal of Advice and if the Advice is incidental.

I was thinking about a prospective client who came to us because he felt his current Financial Advisor (notice the word advisor, which seems to mean one who gives advice) wasn’t giving him enough advice how to handle his investments.  After meeting the prospect, he felt that since he had been working with this financial advisor for many years, he should go back to him one more time to see what advice he could get.

It occurred to me that there are a lot of securities transactions that happen all the time between institutional investors and broker/dealers that are truly based on the details of the transactions and the suitability standard is appropriate.  And there is a small segment of the public that know what they want to buy or sell.  I’m reminded of the E-Trade TV commercials with the baby “talking”.  Everyone else wants Advice! 

So, this seems pretty simple to me. If a client wants advice, then the one giving the advice is an advisor and should be held to one standard – as a fiduciary.

If someone in the financial services industry doesn’t want to be held to the fiduciary standard then they should not call themselves “financial advisor” or “financial consultant”, they should call themselves what they are and do: registered representative, broker or agent.

If someone holds themselves out as giving financial advice, then they should be held to a fiduciary standard.  It is what more people think they are getting and what they expect.

It doesn’t matter what type of firm the one giving the advice works at or how they are compensated.  It doesn’t matter what type for product.  The majority of the public wants advice.

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