Making Brokers Toe the Mark – New York Times – 02/14/15

The New York Times

Your Money – February 15, 2015

Making Brokers Toe the Mark

By Tara Siegel Bernard

If you are in the market for financial advice, good luck figuring out which financial advisers are legally obligated to act in your best interest. There is a big difference between glorified salesman and true investment advisers, and yet the onus is on consumers to sort it all out.

In other words, if brokers don’t sell something, they cannot get paid. And, unlike investment advisers, many brokers do not have to adhere to the stringent fiduciary standard requiring them to act in their customers’ best interest. They only need to recommend “suitable” investments based on an investor’s personal situation, taking into account things like age, goals and stomach for risk. That may sound reasonable, but it leaves enough wiggle room for brokers to recommend a perfectly “suitable” mutual fund — but one that pays them more than other available options at the customers’ expense.

Comments February 14, 2015

Can you imagine a healthcare system where physicians are compensated by pharmaceutical companies? Instead of physicians prescribing the best drug they may simply prescribe those that pay the highest commissions from the pharmaceutical companies. Or, a physician may not recommend the best drug because they do not have a selling agreement with that pharmaceutical company. Or even worse, they may prescribe a drug even if it is unnecessary-to be sure they receive any compensation. Fortunately, physicians are legally obligated to place the patients’ interests before any other party and are compensated for managing their health.

Should You Choose a Financial Advisor or a Registered Investment Adviser?

Financial Advisors are not legally obligated to act in clients’ best interests. Many Financial Advisors are compensated by the companies when they sell their products. Some product providers pay different commission rates to encourage the sale of their products. Assuming the Financial Advisor is compensated the same by each product provider, there are two concerns:

1. Do they have selling arrangements with all product providers?

2. Is the sale necessary?

Registered Investment Advisers (RIAs) are compensated with fees, not commissions. Fortunately, RIAs are legally obligated to place the clients’ interests before any other party and are compensated for managing their wealth.

Aaron Skloff, AIF, CFA, MBA
CEO – Skloff Financial Group

Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies.  He can be contacted at or 908-464-3060.


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