Broker Dealer Fiduciary Responsibility

What is Fiduciary Resposibility or Fiduciary Duty?

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When retirement planning, most people will not receive information on all of the available options because many BDs prohibit the sale of certain securities. The following discusses how this could place advisors in violation of their duty to act in the best interest of the client. The overall intent of the following article is to address the issue and inform readers of things that are happening in the industry.
The overall intent of the following article is to address an issue and inform readers of things that are happening in the industry.

What is Fiduciary Responsibility or Fiduciary Duty?

Fiduciary responsibility or duty is a legal responsibility to operate in the best interest of a client. Some people will ask who has this duty. Individuals will assume that anyone who is providing advice on financial planning or retirement planning will have this duty and obligation – not so fast.

What is a BD or Broker Dealer?

A broker dealer is a firm that purchases and sells securities.

Who are Stock Brokers?

Stock brokers can be any financial consultant that sells stock and bonds to clients. These individuals generally possess a Series 63 and 7 license and they will be required to sell the stocks and bonds under the umbrella of a broker dealer. When dealing with a Registered Investment Advisor, there is no need for them to be under the broker dealer umbrella.

A Broker Dealer’s Function

In addition to being a company that will allow a stock broker to sell securities and mutual funds, a broker dealer’s duty is to function as an overseer of advisors. Making certain that the brokers it gives a license to are acting in the best interest of their clientele.

What is the Broker Dealer Accountable For?

Broker dealers are responsible for all actions of the licensed financial advisors that work for them. Broker dealers are ultimately responsible for their financial consultants’ selling securities to their clientele that could be construed as an inappropriate investment for a clients risk profile.

What is a Broker Dealer’s Compliance and Regulations to Advisors?

The broker dealer makes certain that all communications between advisors and clients are monitored and coincide with acceptable practices which are regulated internally as well as externally. This will include electronic and physical mail as well as marketing. This is done to ensure that advisors are selling products in an appropriate and regulated method.

Does a Broker Dealer Protect Its Own Interests or the Client?

You may be shocked to hear that most Broker Dealer’s are actually more concerned about shielding themselves from legal headaches rather than acting in the best interest of their clients. In many cases, Broker Dealers achieve this by restricting the types and level of advice that is offered to clients through their financial consultants. They actually restrict some of the products that are available to clients in order to protect themselves from lawsuits. Advisors will be provided with a list of products that cannot be offered to a client. What would you think if you learned that you were given limited information and investment opportunities that could guarantee your nest egg from the ups and downs of the stock market? Most would likely seek out an advisor that was not working under these handcuffs.

Limited Products and Advice Details by the Broker Dealer

This is at the discretion of the broker. Some of the more common products that will be limited usually include Life Settlements, Life Insurance, Reverse Mortgages and Equity Indexed Life Insurance.
Category: Financial Planning

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