As a Florida investor, you know how much you rely on your financial advisor to steer you into investments that not only provide you with a good return, but also mesh with your investment needs and goals. But are you sure that (s)he always acts in your best interests? Or is it possible that (s)he sometimes recommends that you invest in products (s)he and his/her company sell that will benefit them more than they will you?

As recently reported in the New York Times, the Securities and Exchange Commission has long made a distinction between the duty of care owed by brokers, a/k/a registered representatives, to their customers as opposed to that owed by investment advisors. Traditionally, if you dealt with a broker-dealer, the SEC required him or her to recommend only “suitable” investments to you, suitability determined by a number of factors including the following:

  • Your investment goals
  • Your age
  • Your willingness, or lack thereof, to take investment risks

Conversely, if you dealt with an investment advisor, (s)he had to act as a fiduciary; i.e., always put your interests above his or her own when recommending investments.

New rule

In June, however, the SEC announced a new Regulation Best Interest rule that will take effect in June 2020. Under it, it will make no difference whether you invest through a broker-dealer or a financial advisor. Both must adhere to the higher fiduciary standard.

The SEC heralded the new rule as one that will “elevate, enhance and clarify” the customer obligations under which broker-dealers must operate. Consumer groups, however, disagree, alleging that Regulation Best Interest contains more glitz than guts. Why? Because its emphasis rests on brokers merely disclosing conflicts of interest to their customers rather than on eliminating those conflicts. In addition, it lets investment advisors likewise rely more on disclosure rather than true fiduciary actions, at least according to critics. Unfortunately, it appears that the old caveat emptor principle will remain valid under Regulation Best Interest: buyer beware.

This is general educational information and not intended to provide legal advice.