In my last newsletter, I wrote about finding $50k+ worth of hidden costs due to conflicts of interest, and a reader asked me if there is a quick way to check if her financial advisor has such conflicts. Her question inspired my article today.

Before we dive into that, I must first give you a quick overview of the legal environment in which financial advisors operate. There is the Securities Exchange Act that regulates brokers and does NOT require them to act in the best interest of their clients, and there is the Investment Adviser Act that regulates RIAs (registered investment advisors) which does require them to act in the best interest of their clients. 

Your financial advisor can be a broker, an RIA, or even dually registered. Those dually-registered ones can be especially deceptive. Here is an actual example – the last few lines of a financial advisory firm’s website:

Securities offered through Ava***x Investment Services, Member FINRA, SIPC. Investment advisory services offered through Ava***x Advisory Services. Learn more about our firm’s background and Financial Professionals on FINRA’s BrokerCheck.

Note that this financial advisor has a rather complicated corporate structure. He owns two firms, one is a brokerage, and the other is an RIA. Do you see the problem here? He can claim to be a fiduciary due to the RIA registration, but he can collect hidden fees through his brokerage firm. His clients would have no idea.

Here are a few quick ways you can check out your financial advisor:

Quick Check #1: Check their website. , If you see more than one business entity, especially with wording like “Securities offered through …”, you know for sure that this financial adviser is dually registered.

Quick Check #2: If a financial advisor is a member of FINRA, he is a broker. If he tells you that his professional record can be checked on FINRA’s BrokerCheck, he is a broker.

Quick Check #3: Ask your financial adviser if he has a Series 7 license. If he does, he is a broker.

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