Sam’s Letter to Editor of Barron’s

Barron's: Fee-Only Fiduciary

A Clear Difference

To the Editor (as submitted in May 4th, 2015 edition):

I cringe every time Barron’s publishes their list of top “advisors” (most recently, in the “America’s Top 100 Financial Advisors” section from the April 20, 2015 issue).  The terminology perpetuates the misconception that the “brokers” honored therein are “advisors” under the law, a distinction that many in the industry are none too quick to help you correct or clarify.  The financial services industry has used clever, and purposeful, tactics to blur the lines of legal obligation by the investment professional to the end investor.  This includes the use of words that may imply a fiduciary standard of care, like “advisor”.  I would encourage you to read the report delivered by the Public Investors Arbitration Bar Association (PIABA) on March 25, 2015, entitled:  “MAJOR INVESTOR LOSSES DUE TO CONFLICTED ADVICE:  BROKERAGE INDUSTRY ADVERTISING CREATES THE ILLUSION OF A FIDUCIARY DUTY”  (https://piaba.org/system/files/pdfs/PIABA%20Conflicted%20Advice%20Report.pdf).

It is a disservice to the readership to not call a spade a spade.  Let me assist:  Brokers are brokers, advisors are advisors.  Their legal duty to the client is not the same.  The “brokers” recognized in your most recent edition primarily provide advice under the oversight created by the Securities Exchange Act of 1934 and the Maloney Act of 1938, requiring a “suitability” standard of care when making investment recommendations.  In these situations, the clients’ best interest need not be placed first 100% of the time, often leading to unseen or unacknowledged conflicts of interest.  Conversely, Registered Investment Advisors (RIAs) must meet the higher “fiduciary” standard of care when providing investment advice.  Under the Investment Advisers Act of 1940, an “advisor” must act as a fiduciary and place the clients’ interest first 100% of the time.  These are stark and bold variances.

As the fiduciary debate becomes more public and new law or oversight is being considered, it is important to provide the investing public with the clear and distinct differences between non-fiduciary and fiduciary advice.  A good starting point is to avoid letting the large brokerage firms or wirehouses dictate the conversation or by enabling the use of purposefully confusing titles.  An investing public, armed with full information, will make reasonable and rational decisions.  In the end, it’s hard to believe a client wouldn’t want a “fee-only” fiduciary sitting on the same side of the table with them at all times.

Samuel R. Scott
Sunrise Advisors
Leawood, Kansas

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To the Editor (as published in May 4th, 2015 edition):
I cringe every time Barron’s publishes a list of top “advisors” (most recently, in the “Top 100 Advisors” section in the April 20 issue). The terminology perpetuates the misconception that the brokers honored therein are “advisors” under the law, a distinction that many in the industry are none too quick to help you correct or clarify.

Brokers follow a “suitability” standard of care when making investment recommendations, by which the clients’ best interests need not be placed first 100% of the time. Registered investment advisors must meet the higher “fiduciary” standard of care when providing investment advice. A client should want a fiduciary sitting on the same side of the table with them at all times.

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