There are two primary types of client relationships in the world of financial investments. The sales model represented by brokers versus the fiduciary model represented by Registered Investment Advisors.
The following is a good example of the pitfalls of the sales model:
Notice that FINRA, the self regulatory authority for brokers says:
“….it’s investigating whether the risks associated with the securities were adequately disclosed.”
Well here is an example of so called disclosure:
In our opinion it’s ridiculous to expect most Americans to be able to adequately interpret 72 pages of “disclosure” (and this is only the supplement to the initial disclosure document).
Yet the world of FINRA regulation provides the framework for a Prudential spokesman to proclaim:
“As with all bonds, investors choosing to sell the notes before maturity may sell them at market value to other investors and face certain risks, which are fully disclosed at the time of issue…”
In other words, buyer beware.
The inherent problems and conflicts of interest with the sales model is why we choose to operate as Registered Investment Advisors. Our regulatory framework is the Investment Advisors Act of 1940, which requires that we act in our client’s best interest. We believe this is the best framework for client relationships. The SEC is responsible for supervision under the Act, and they have unfortunately been underfunded for the last several years. We hope that will be corrected as we feel more of the public should be served by Registered Investment Advisors.