Commissioned Compensation is based on selling. At Eddleman & Eddleman, LLC, there’s never any confusion as to whom we serve because we don't sell!
Most people don’t realize it, but when it comes to investing, the industry has two legal standards regarding the loyalty of a consultant’s advice. Financial consultants are either acting as fiduciaries or they are not! Most are not. In the past, the industry has assumed that clients knew the difference. However, a new Securities and Exchange Commission (SEC) ruling now requires that broker/dealers who claim an exemption from the Investment Advisors Act and its fiduciary standards must disclose that their interests may diverge from their clients. Broker/dealers have previously been exempted from investment advisor registration and disclosure rules when their advice has been "solely incidental" to their broker/dealer role.
Harold Evensky, a founding National Council of Financial Fiduciaries (NCFF) board member noted, "This new disclosure rule is a vital step towards reinforcing the sharp historic and legal difference between a SEC registered investment adviser and a NASD registered broker. The key difference is not compensation or the number of regulations in place. It's much more. A broker and an adviser have fundamentally different responsibilities and jobs, based in law. Brokers owe loyalty to their firm, and their job is selling investment products and executing transactions. An investment adviser, on the other hand, provides advice and, by law, must put his client's interests first. He owes his loyalty to his clients.”
As a consumer, be aware that even if a broker/dealer is registered as an investment advisor, it may be difficult to tell when they are acting as a fiduciary and when they are not. In addition, individuals using a broker/dealer may act as a registered representative (nonfiduciary) or as a registered investment advisor representative (fiduciary). We make it simple. We formed our own Registered Investment Advisor firm so that we are never representatives of a broker/dealer!
