Filbrandt Reports

Is Your Adviser a Fiduciary or a Broker?

Here are some questions you can ask to find out:

“Are you legally obligated to put my interests above yours?”

  • A fiduciary is required to put the clients’ interests above his or her own.
  • Brokers often operate under the “suitability standard,” which means the investments he or she recommends must be suitable for the clients’ needs. Some brokers do not search for comparable products, and this can result in you not being aware of better options that may exist in the marketplace.

“Are you a dual registrant?”

  • Today, a large number of financial advisers serve as both investment advisers and brokers. A study by the Financial Industry Regulatory Authority (FINRA) shows that as many as 88 percent of advisers are “dual registered.”
  • This means the adviser can choose which hat to wear on a given day or in a given situation to determine how much he or she wants to be paid.
  • Typically the lower legal standard applies to a dual registrant.

Ask to see the adviser’s ADV form.

  • The ADV form will describe, among other things, fees and compensation, types of clients, disciplinary information (if any), conflicts of interest (if any), and education.
  • If the adviser cannot provide you with an ADV form, then the adviser is most likely a broker.
  • Bear in mind that just because an adviser has an ADV form doesn’t mean that the adviser doesn’t also put on the broker hat from time to time if he or she is “dual registrant:” as a fiduciary and a broker.

“Are you ‘fee-only’ or fee-based?”

  • Fee-only advisers cannot legally accept commissions. Their only source of revenue is the fee they charge for advice and investment management.
  • Since brokers are paid via commissions, they cannot legally portray themselves as fee-only.

“What licenses do you have?”

  • A “series 7” license means the adviser is registered as a stockbroker.
  • A “series 65” or “series 66” license means the adviser is registered as an investment adviser.
  • Having both licenses is the equivalent of being dual registered.
Fiduciary or not

Instantly download a PDF of this list of questions.