When you want help with financial planning for retirement, I believe it’s important to speak with a professional. I also believe it’s important to know what type of professional you are speaking with. Generally speaking, there are two types of financial planners: brokers and investment/financial advisors.
What’s the difference? Brokers must adhere to “best interest” standards, while financial advisors have a “fiduciary duty” to their clients. Neither is necessarily good or bad, but the distinction is critical, so much so that the Securities and Exchange Commission (SEC) passed new rules in 2019 that clarified the difference and required better communication with clients about the roles. In an interview on NBC Squawk Box, SEC Chairman Jay Clayton said, “We’re making it so if you’re a broker dealer or investment adviser you have got to tell people how you make your money.”
Clayton also described the difference in pay structures and obligations for brokers and financial advisors. “There are all types of fiduciary duties, but I’m going to talk about the investment adviser fiduciary duty,” said Clayton. “It’s a combination of care and loyalty. You owe somebody a duty of care, and you can’t put your interests ahead of their interests. . . .we want people to understand that the investment adviser space and the broker-dealer space are different. They’re very different in the way people get paid.”
Clayton explained that broker-dealers are typically paid commissions on a transaction-by-transaction basis while in the investment advisor space, there is more of a long-term relationship with the client, and the advisor is paid a management fee rather than commission. “Those are two very different relationships, and we want to be clear,” said Clayton.
You should be clear, too, when choosing a professional retirement planning guide. Ask whether they have a best interest or fiduciary duty and make your decision accordingly. At Retirement Planners of America, we are investment advisors; therefore, we have a fiduciary duty, which is, as Commissioner Clayton said, “a combination of care and loyalty.” We‘d love to offer that care and loyalty to you, and to help you protect your retirement savings. Contact one of our financial advisors today.
Ken Moraif, CFP®, MBA
Senior Advisor at Retirement Planners of America