What’s Behind Investment Advice?

Dear Melissa:

Stegner Investment Associates, Inc. (SIA) is a Registered Investment Advisor (RIA) with the Securities and Exchange Committee (SEC) under the Investment Advisory Act of 1940. We have served as fiduciaries since our inception in 1994 and are required by law to act always in our clients’ best interest. 

However, many investors work with professionals who, in the past, have not been held to the same level of fiduciary duty. For these investors, the good news was announced on Wednesday, as the Securities & Exchange Commission (SEC) issued an investment advice reform package ruling called “Regulation Best Interest.”

This new rule will require brokers to give investors more information about their commissions and other practices that can influence the broker’s advice. Now, brokers will have to provide clients with a disclosure document that lists key facts about the broker-client relationship, including potential conflicts of interest, and they must also disclose when they pick investments from a limited range of offerings – i.e.: their firm’s own products. 

It is important to note that SIA’s independent business model has allowed us to select from an unlimited range of offerings and that we have also offered clients full fee disclosure for more than 25 years. SEC Chairman Jay Clayton said, “This action is long overdue.” These regulations are still not as stringent as the fiduciary rule that our firm must follow, but as Clayton continued, “this regulation is a significant step toward increasing investor protection while also preserving investors’ access to a range of products and services at a reasonable cost.”

What’s Behind Investment Advice?

Before this ruling, brokers and financial advisors who were not registered with the SEC could recommend investments that were “roughly suitable” for their clients, rather than proving that they acted in the clients’ “best interest.” Although the SEC is making some long overdue changes to benefit investors, they must be aware that this new rule does not require brokers to recommend the lowest-cost options. In addition, once the regulation goes into effect one year from now, brokers will no longer be able to compete in sales contests for incentives and they will no longer be allowed to use the term “adviser” as part of their name or title when dealing with an investor.

While “Regulation Best Interest” is an improvement, SEC Commissioner Rob Jackson remarked that “investors should seek out true fiduciary advice from financial professionals who have chosen to hold themselves to a higher standard.” As an RIA, SIA has held ourselves to the ultimate standard, serving as fiduciary throughout the history of our firm.

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