Broker Check

Monday Money Report

| July 06, 2020

Last week, the markets were closed on Friday.  Tuesday saw an end to the best quarter in market history, with the S&P up over 20%.  Of course, this follows the first quarter of 2020, which was the worst in history.  We continue to see market growth based on positive jobs and manufacturing data.  It still seems like a major disconnect with Main Street and small businesses, which is why many of us believe the recovery of the economy overall will be more like the square root symbol.

With the end of the quarter also came a new piece of financial services regulation, the Regulation Best Interest.  Which sounds amazing, until you look at the details. We’ve talked before about the difference between a registered representative, or what most people consider a broker, and an investment advisor.  A registered representative works on commission and is held to a suitability standard, meaning largely that he or she should be able to justify how the investment product meets the client’s objective and risk tolerance.  An investment advisor is paid a fee by the client, and is held to a fiduciary standard.  By that, we mean they are obligated to act in a client’s best interest and put the client’s interests ahead of their own.

Complicating the matter further is that most of us in the industry wear both hats.  That is, we are both commissioned salespeople and advisors. I truly believe the vast majority of us are going to do the right thing for a client regardless of how we are paid or what standard we operate under.  But the rules are different, and require a different standard of care.

Enter the SEC’s Reg BI.  If you have an investment account, you’ll be receiving the firm’s Form CRS, or Customer Relationship Summary, in the next few days. And going forward, every time an investment professional makes a recommendation, they are required to give you the Form CRS. Because Reg BI requires firms to try to reduce conflicts of interest – like when advisors have multiple ways to sell the same investment product, each of which pays them a different commission, or stopping sales contests to push particular products. But anything that can’t be mitigated just has to be disclosed. Now, I’m sure everyone reads all of the disclosures they receive.  But in case you don’t, here’s what the regulation does – it says those conflicts are okay, as long as they are disclosed.

What’s worse is that brokers who work strictly under the suitability standard can now say they work under a best interest standard, when they aren’t required to always act in a client’s best interest.  They just have to disclose those conflicts. An example of a conflict is that they can only sell their firm’s proprietary products.  There is also concern that clients won’t understand that the best interest standard is not a strict as the fiduciary standard.  And finally, consumers have no recourse under Reg BI.  Enforcement is strictly up to the SEC and, unlike the fiduciary standard, a client cannot file a claim against an advisor for violating it.

For industry professionals, we will be sending out the Form CRS pretty much any time we talk with a client, because we have to give it to you any time we make a recommendation. Expect to receive this form often.

If you are concerned, there are several things you can do to protect yourself.  Check our your financial professional at, using the Broker Check feature.  We’re also required to have a link to broker check on our website. If a professional has multiple complaints, or fines, suspensions, or terminations, that’s a big red flag.  Read the Form CRS and ask your broker or advisor the questions listed.  Ask how they are getting paid, not just what you’re paying. A great example here is a fixed annuity.  There are no fees to the client, but the advisor is still getting paid.  The product may not pay as high an interest rate, or have other limitations that allow the insurance company to pay the agent his or her commission.

At the end of the day, brokers, advisors, agents, they all need to earn a living and should be paid for the work they do.  What a client needs to consider is if the investment or insurance product being recommended is the best one for them.  The new regulation does not require that brokers and insurance agents follow a fiduciary standard.  An investment advisor, who is working for a fee paid by the client, is held to that standard and a client has the ability to take action if that standard is not met.  Be sure to read those new disclosures you’ll be receiving.


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Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.

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The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.