Young Research & Publishing Inc.

Investment Research Since 1978

Who’s Looking Out for You?

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Do you ever wonder why the guys on TV are selling you gold if it’s so valuable? Why don’t they just pocket it for themselves? Some pretty good money is being made in the transactions they’re promoting, don’t you think?

With all that selling, there’s buying too. Like the bookie in Vegas, the gold guy is after the vig, or commission, from both sides of the transaction. He doesn’t really care if gold goes up or down. He just happens to be promoting the buy side on television. All the while, it’s quite possible he sees a line of sellers wrapped around the block outside his office.

You don’t want your portfolio managed by someone in the transaction business. You want to work with someone who has a fiduciary responsibility to you—someone who’s looking out for your best interest as required by law. An investment advisor is such a person, required by law to act as your fiduciary under the Investment Advisor Act of 1940.

Broker-dealers are not held to a fiduciary requirement. They are held to a less stringent suitability requirement. The difference between the two could fill an office from floor to ceiling with stacks of small-print legal documents. I’ll summarize it as follows: a fiduciary standard puts your interests at the heart of every transaction; a suitability standard might too, but is hard to prove when things don’t exactly work out as planned.

In January, the SEC released its “Study on Investment Advisers and Broker-Dealers” to Congress. The study was required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The report is 208 pages long, including pages upon pages of recommendations. I could have done it with one or two words.

With all the recommendations, there’s no clear vision about whether or not broker-dealers are going to be held to a stricter fiduciary standard. Why not hold them to the same standard? A simple recommendation should simply state that investment advisors and broker-dealers will be held to the same fiduciary responsibility, as stated in the Investment Advisor Act of 1940.

 

My advice is if you’re looking for portfolio management, stick with an investment advisor. Many brokers say they’re advisors. Ask if they’re held to the strict Investment Advisor Act of 1940. Better yet, ask for it in writing. Investment advisors will provide you with their form ADV-II. And that’s as good as gold.

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.