Broker Check

Conflict of Interest - Wearing Multiple Hats

| June 25, 2017

Conflict of interest should be disclosed because it is impossible to eliminate -- Wearing Multiple Hats might add to it

If you consult a surgeon, s/he should share with you the advantages & the disadvantages of having surgery or not having surgery. The surgeon might even get paid (a small amount) for an "intellectual" consultation.  But typically the surgeon will get paid dramatically more for performing surgery.  So the surgeon has a built-in conflict of interest that can not be eliminated.

Please also see Flavors of Financial Folks and How Advisors Get Paid  and Fiduciary ... Suitability ... Or Both for detailed references, links and definitions, as well as the links and documents below.

A Registered Representative (RR) might "... act(s) as an account executive for clients trading investment products ..." and might get paid a commission for doing so ... and be held to the Suitability Standard

Conflict of Interest is inherent. If a Registered Rep suggests a financial transaction on which s/he gets paid a commission ... if the transaction occurs the RR might get paid and if the transaction does not occur the RR might not get paid. So there is potential bias. The rules and regulations in this area continue to evolve.

A Registered Investment Advisor (RIA) or Investment Advisor Representative (IAR) might provide ongoing investment advice and might get paid an ongoing fee for doing so ... and be held to the Fiduciary Standard

Is there still Conflict of Interest?  Yes.  Please again note the example above about surgeons. Yogi Berra famously supposedly said, "In theory, there is no difference between theory and practice.  In practice, there is." My very simplistic thought about the Fiduciary Standard - only do what is in the clients' best interests - might apply - should apply - should always apply by law and regulation to RIAs and IARs. Therefore, again simplistically, the RIA / IAR should only accept you as a client if it is in your best interests to receive ongoing investment advice from and potentially pay a fee to the RIA / IAR..

Clarification / FYI: An RIA can be an entity, firm or individual. Often RIA firms have IARs - Investment Advisor Representatives - associated with them. I am an IAR and I am associated with Cetera Advisors. Cetera Advisors is an RIA.

A Registered Investment Advisor (RIA) or IAR might provide financial planning and or consulting for a fee ... and be held to the Fiduciary Standard

Once again, Is there still Conflict of Interest?  Of course. Like the surgeon, if the client decides to pay a planning or consulting fee, the RIA / IAR gets paid.  If not, they don't.

But now, it gets even more complex.  Please Review Cetera's Consulting Agreement and Cetera Advisors Advisory and Financial Planning Agreement linked below.  Paragraph 4 from the Cetera Advisors Advisory and Financial Planning Agreement and Paragraph 5 from Cetera Advisors's Consulting Agreement discuss potential conflict of interests.  Below is my take ...

Wearing Multiple Hats is Confusing!  Here's my summary:

  1. As an IAR of Cetera, I might be paid a Consulting Fee or a Financial Planning Fee, using the Cetera Consulting Fee Agreement  and / or Financial Planning Fee Agreements attached below ... and held to the Fiduciary Standard.

  2. The Client is under no obligation to do any other business with me or us -- implement any recommendations with us.

  3. But after completing a Consulting Agreement, the Client might choose to implement one or more of my recommendations with us.

    A. As an IAR of Cetera, I might also receive an Investment Advisory Fee and I would be held to the Fiduciary Standard

    B. As an RR of Cetera, I might receive a investment commission and I would be held to the Suitability Standard.

    C. As a licensed insurance agent and a Registered Representative, I am also held to the Suitability Standard and I might receive a commission for a variable insurance product.

    D. As a licensed insurance agent,   might receive an insurance commission and be regulated by insurance laws and regulations of the resident state of the insured for a Fixed Insurance Product.

    Under A, B, C and D above Cetera Advisors might also receive payments.

    All 4 of these scenarios represent potential Conflicts of Interest with me as an IAR and with Cetera Advisors.

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