Stock Brokers (A/K/A Financial Consultants) do not have a legal responsibility to make investment recommendations with the Client’s best interests in mind. Common sense; however, would say that doing what is best for your clients will be advantageous to the broker, as well, in the long-term. I’m quite sure that most reputable brokers do, in fact, work with their clients’ best interests in mind.

The linked article from the NY Times, by Tara Siegel Bernard, A Fancy Financial Adviser Title Does Not Ensure High Standards, http://www.nytimes.com/2012/07/07/your-money/beware-of-fancy-financial-adviser-titles.html?ref=business, provides some detail on this topic. In an earlier Blog Post, I provided information as to how to choose a Financial Advisor.

The Dodd-Frank Legislation encouraged the SEC to enhance the role of a Securities Representative to that of an “Advisor”.  That would require that some brokers earn additional licenses and both they and the Firm would take on the role of a Fiduciary.  That means that they would have a Legal Responsibility to place the Client’s Best Interest ahead of the Firm’s.  I have no doubt that the Financial Services Industry Lobbyists have worked very hard to make sure that that does not happen.   So far, it hasn’t.

Some securities firms focus their representatives sales efforts on either internal (proprietary) mutual funds or ones that have struck a deal with the Firm. Always, ask your FA what the rationale is behind whatever security they are recommending.   The FA should have no problem with providing an explanation, and they should be able explain it in understandable language.

Personally, if they suggest a Variable Annuity, I would suggest having them go into detail as to why the VA is right for you. VAs tend to have higher expenses and limitations on the investment options.  Perhaps the VA is best!  But, if they cannot explain it in plain, understandable language, find another FA.



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