UlTImATE SUccESS GUIdE(2) ARe YoU A RegIsteReD RePResentAtIve,
oR A RegIsteReD InvestMent ADvIseR?Those two titles might sound similar, but there’s a big difference in
the type of advice you’re going to get. Many people think all advisers
do what’s in the best interest of their clients. I certainly wish it was that
way, but it’s not.
This is a question of to whom or what the adviser has a fiduciary respon-
sibility. It’s an important concept to understand. Not all financial advis-
ers have an obligation—a fiduciary responsibility—to look out for you
and do what’s best for your investments and your retirement.
If you currently work with an adviser from one of the large firms, and on
his or her business card it says “registered representative,” that means
the adviser has a fiduciary responsibility to the firm. It could be any of
the big firms, Merrill Lynch, UBS, Hilliard Lyons, Ameriprise—they all
pretty much work the same. A registered representative is an employee
of a firm and has a fiduciary responsibility to the firm, not the clients.
To emphasize the fact that they work in the firm’s best interest, not
the client’s, let me give you an example of what would happen if an
investor gets into some sort of conflict with a registered representative
and they end up in court. Let’s say the judge asks the adviser, “Why
did you recommend this product when this other product would have
been better for your client?” A legitimate response for a registered
representative would be, “I sold this other product because that’s what
makes my firm the most money. I’m a W2 employee of that firm, and
that’s what I have to do.” That’s a fully acceptable answer in that situa-
tion. Why? It’s acceptable because, as a paid employee of the firm, the
adviser’s obligation is to sell products and make money for the firm.
That’s what he or she is legally contracted to do. Registered repre-
sentatives are not legally obligated to save money for investors at the
expense of their employer. The firm dictates what products, services
and strategies a registered representative can and can’t recommend to
clients. That’s why these firms can have quotas for a certain amount of
mutual funds or certain products that the advisers have to sell, regard-
less of whether it’s in the client’s best interest. How do I know this? I
used to be a registered representative at one of the large firms. Once
I realized how things operated there, I left to start my own company.
Now, I don’t have quotas or a manager looking over my shoulder tell-