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A Wolf of Wall Street in Sheep’s Clothing?

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The SEC has completed its new regulation on best interests, and will begin enforcing it in one year. The rule increases the level of disclosures brokers must make, but it should not be confused with the more stringent fiduciary rules registered investment advisors are held to. In my opinion, if you’re looking for financial advice that may be free of some of the conflicts of interest that may be associated with brokers, you need to find a registered investment advisor held to a fiduciary standard. The Wall Street Journal’s Dave Michaels explains the new rule here:

The SEC said the new rule, which becomes enforceable in one year, will give investors more information about brokers’ complex pay incentives, but it also made changes from an earlier proposal which benefit brokerage firms. The agency didn’t impose a higher “fiduciary” duty that applies to investment advisers, whose requirements were spelled out through a separate regulatory notice issued Wednesday.

“Everything is a calibration,” SEC Chairman Jay Clayton said in an interview after the vote. “We used the benefit of all our experience to calibrate this to land in the best spot for investors.”
He continues:
The legal duty of brokers has lagged behind their move into giving advice to millions of households. As technology automated the role they once played taking and filling orders, brokers shifted to calling themselves financial advisers. Yet for years they have escaped the toughest legal obligations that apply to investment advisers.

Brokers and advisers will continue to be governed by two standards, although the industries have significant overlap and many households are confused by the difference between them. Most Wall Street firms offer both account types. Investment advisers must continually monitor their client’s best interest, while the brokers’ duty is tied only to specific recommendations.

Mr. Clayton said the rule moves the broker standard closer to the one for advisers. Clearer disclosures explaining fees and legal requirements will allow investors to “comparison shop,” which will spark efforts by brokers and advisers to offer more compelling, lower-cost options, he said.

Read more here.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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