The term “Financial Advisor” is not precisely defined across the industry. It can apply to stockbrokers, insurance agents, investment managers, and many other kinds of financial professionals, causing confusion among consumers. Each different type of financial professional operates under its own set of regulations. When it comes to investment services there are three main financial professionals that people look for, and often misunderstand.
A person that provides ongoing advice to clients regarding their investments.
Someone who is registered as both a Broker Dealer Agent and an Investment Advisor Representative. This person may act as an Investment Advisor Representative on some accounts, and as a Broker Dealer Agent on others.
Someone who buys and sells securities for a firm and for clients outside of their firm.
Registered Investment Advisor Representatives are subject to the Fiduciary Standard, which requires them to operate in the client’s best interest for the entire duration of the relationship. At no point are they permitted to put their own interests, or the interests of their employer, ahead of the client’s.
Since Regulation Best Interest went into effect on June 30, 2020, Broker Dealer Agents, when working with retail clients, must operate under a Best Interest standard. They must act in their client’s best interest at the time that they are providing the client with advice. This differs from the Fiduciary Standard in that the agent is only required to place the client’s interest ahead of their own at the specific time that a recommendation is being made. There are no specific parameters established as to what exactly defines a “recommendation.” The SEC states that “factors considered in determining whether a recommendation has taken place include whether communication ‘reasonably could be viewed as a ‘call to action’ and ‘reasonably would influence an investor to trade a particular security or group of securities.’”1
• A Registered Investment Advisor Representative is a person that provides ongoing advice to clients regarding their investments.
• A Broker Dealer Agent is someone who buys and sells securities for a firm and for clients outside of their firm.
• A Dually Registered Financial Professional is registered as both a Broker Dealer Agent and an Investment Advisor Representative. This person may act as an Investment Advisor Representative on some accounts, and as a Broker Dealer Agent on others.
Registered Investment Advisor Representatives are subject to the Fiduciary Standard, which requires them to operate in the client’s best interest for the entire duration of the relationship. At no point are they permitted to put their own interests, or the interests of their employer, ahead of the client’s.
Since Regulation Best Interest went into effect on June 30, 2020, Broker Dealer Agents, when working with retail clients, must operate under a Best Interest standard. They must act in their client’s best interest at the time that they are providing the client with advice. This differs from the Fiduciary Standard in that the agent is only required to place the client’s interest ahead of their own at the specific time that a recommendation is being made. There are no specific parameters established as to what exactly defines a “recommendation.” The SEC states that “factors considered in determining whether a recommendation has taken place include whether communication ‘reasonably could be viewed as a ‘call to action’ and ‘reasonably would influence an investor to trade a particular security or group of securities.’”1
Registered Investment Advisor Representatives are legally required to abide by the Fiduciary Standard at all times, while Broker Dealer Agents, when working with retail clients, are subject to Regulation Best Interest at all times. Dually Registered Financial Professionals follow Regulation Best Interest when they are acting as a Broker Dealer Agent, and they follow the Fiduciary Standard while acting as a Registered Investment Advisor Representative. This becomes a point of confusion when it comes to marketing. If registered only as Broker Dealer a firm cannot call itself a Financial Advisor in marketing materials. However, if they are dually registered as a Broker Dealer and a Registered Investment Advisor than they may use the term “Financial Advisor” in marketing, even if they act as a Broker Dealer on most of their accounts. According to the SEC, as of December 2018, firms that are dually registered hold over 63% of customer accounts that are held by Broker Dealers.2
A dually registered financial professional may act in different capacities on different accounts for the same client. They may be a Registered Investment Advisor Representative on one and a Broker Dealer Agent on another. To help provide some clarity, we created this table that shows how some of the largest financial firms operate.
Problems can arise when people do not know the status of the person providing them advice on their accounts. While it should always be easily determined by reading through disclosure statements (in particular a firm’s Form CRS), we recommend simply asking your advisor if they are acting as a fiduciary (or Registered Investment Advisor Representative) on all of your accounts. If they say no, then it may be time to find a new financial advisor – one who is a fiduciary for all clients, on all accounts, all the time.
All Financial Advisors at One Day In July are Registered Investment Advisor Representatives who act as Fiduciaries on all accounts, for all clients. The advisors at One Day In July are all Fee-Only Fiduciaries, meaning that we charge one simple, transparent fee that is based on your asset level. There are no hidden fees, commissions or added costs when you work with a One Day In July Financial Advisor. No one pays us other than the client. To learn more about our advisor-client relationship, view our Form CRS.
1. https://www.sec.gov/info/smallbus/secg/regulation-best-interest
2. https://www.federalregister.gov/documents/2019/07/12/2019-12209/commission-interpretation-regarding-the-solely-incidental-prong-of-the-broker-dealer-exclusion-from
Get Started Today.
v 2.4.67 | © One Day In July LLC. All Rights Reserved.
