The United States, Not the Best Place for Financial Advice

Seventy nine percent of Americans surveyed said they would rather work with an investment advisor if they knew advisors provided greater investor protection than stockbrokers (TD Ameritrade survey). Greater investor protection comes from the fact that investment advisors have a fiduciary duty (based on trust) to act in the best interest of their clients. Brokers, generally, do not make investment decisions based solely on their clients’ best interest. Full disclosure: I am a Registered Investment Advisor and have a fiduciary responsibility to put my clients’ interests ahead of my own.

In July 2013 Australia will require all licensed financial advisors to have a fee-for-service model, meaning that a financial advisor cannot sell a product to a client and accept a commission on the sale (Financial Advisor Magazine, March 2013). The UK adopted the same requirement in January 2013. The Security and Exchange Commission (SEC), the government entity in the United States which regulates such things, takes a different approach. The SEC does not want to prohibit any specific business model. In my opinion as a Money Coach, the SEC’s approach would make sense if customers understood how the different business models might affect their individual investments. The TD Ameritrade survey found that 74% of investors were not aware that only independent Registered Investment Advisors have this fiduciary responsibility.

One need only look at how financial advice is provided in Australia, even before the decision on the fee-for-service model (Investment Advisor Magazine, July 2009):

Every potential client in Australia must receive a Financial Service Guide which outlines the services the Financial Advisor will provide.

A Product Disclosure Statement must accompany all investment and insurance products.

The Statement includes the fees, the benefits and risks associated with the product, and other information material to the decision to invest.

Personal advice must be accompanied by a written Statement of Advice which explains the reasons for the personalized advice. Conflicts of interest must be disclosed.

Australia’s Ethics of Advice: Client first, Integrity, Objectivity, Fairness, Professionalism, Competence, Confidentiality, Diligence.

Should the Unites States adopt such a policy on giving financial advice? Absolutely! Will it happen? No, not until the financial community is barred from political contributions to our lawmakers (called “bribes” in the rest of the world). In the meantime, buyer beware. Or move to Australia.

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