Whose Investment Advice Can You Trust?

The Feds want to level the playing field between brokers and advisers. It may not make a difference.

Brokers have never enjoyed the purest of reputations in our popular imagination. From the corruptible Bud Fox of Wall Street to the manipulative bond salesmen of Liar's Poker, the people whose job it is to push investments out the door and into investors' arms have often been depicted as morally elastic. After all, brokers are ultimately salespeople who are generally compensated by commission and whose primary loyalty is to their employers. As a result, regulators have never required brokers to act as fiduciaries -- that is, to act in the undiluted best interest of their customers.

That was all well and good so long as broker-client relationships were largely limited to executing buy and sell orders -- which they were, for much of the 20th century -- and as long as any advice brokers gave to clients was incidental to those duties. But over time, brokers' roles have expanded to overlap those of an entirely different group: registered investment advisers (RIAs), who are paid to provide investment advice and who, according to federal law, do have a fiduciary responsibility to act in their clients' undivided best interests. Indeed, a growing number of brokers earn their keep in the same way that many advisers do -- by charging clients a percentage of the assets they manage. And many advisers still accept sales commissions for some or all of their compensation.

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Elizabeth Leary
Contributing Editor, Kiplinger's Personal Finance
Elizabeth Leary (née Ody) first joined Kiplinger in 2006 as a reporter, and has held various positions on staff and as a contributor in the years since. Her writing has also appeared in Barron's, BloombergBusinessweek, The Washington Post and other outlets.