Retirement is something that most people work their entire lives to achieve. Hard earned money is taken from each paycheck and deposited into a retirement account that will hopefully grow into a considerable amount. The world of financial investing can be very confusing and leads most people to trust others in managing their money. This beckons an important question: whom do I trust with my future financial livelihood? The answer to this question could be the difference between a comfortable retirement and the need to continue working.
Broker dealers are the most common type of financial advisors because of their cheap management fees. They have many names including wealth manager, investment consultant, and financial advisor. “The SEC defines a broker as someone who acts as an agent for someone else, and a dealer as someone who acts as a principal for their own account” (Fuhrmann). The contradictory nature of this definition is my problem with brokers. How can a supposed advisor help to make financial decisions for others, while also working in their own self-interest? This is because they are held to a suitability standard when helping others. The suitability standard only requires for the broker dealer to reasonably believe their recommendations are suitable for the client, not the best (Fuhrmann).
I believe that U.S. law should hold broker dealers to more than a “suitability standard”. A fiduciary standard requires financial advisors to always put the clients interest before their own. This new fiduciary policy would lessen subpar investments, increase portfolio management, and minimize potential conflicts of interest between clients and their advisor.
Point 1: Conflict of Interest
If held under a fiduciary standa...
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... cost as little as .05 percent (Carosa). While the price is significantly higher, the benefits that come with it out weigh the cost. Peace of mind in knowing an advisor legally has to act in their clients best interest is a wonderful thing. Although non-fiduciary’s annual management fees are less, investors still end up paying more in hidden fees and subpar investments.
Requiring broker dealers to follow a fiduciary standard would be very beneficial for investors. It would definitely allow investors to choose the best financial options available to them. They wouldn’t have to worry about their advisor having alternative motives. They would also have a more dynamic investment strategy that changes with their changing needs. It will take a lot of legislative push to accomplish a standard fiduciary policy, but I foresee it happening in the very near future.
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