The AARP and North American Securities Administrators Association (NASAA) have launched a new online interview tool to help investors quickly get to the meatiest issues when interviewing prospective investment advisors.
The “Interview An Advisor” tool provides a script for investors to use to zero in on an advisor’s experience, licensing, education, services and products offerings, compensation and standard of care—namely, whether an advisor is required to act as a fiduciary who is “obligated to act in the investor’s best interest.”
The tool’s standard of care question cuts to the chase: “Does your relationship with me fall under a “best interests” or a suitability” standard?”
Compensation questions include: “How are you compensated? Will you break out all your fees and commissions?”
In effect, the interview tool does what federal regulators have failed to do for more than a decade: focus investors’ attention on whether or not a financial professional operates as an investment advisor (fiduciary) using a client best-interest standard, or is registered as a broker, using the less stringent suitability standard.
“While registered investment advisors serve as fiduciaries who are required to provide advice that is in their clients’ best interest, many other financial advisors operate under different requirements that obligate them only to make recommendations that are ‘suitable,’” said Jean Setzfand, AARP senior vice president, programs. “AARP’s new interactive guide will help investors avoid confusion about a financial professional’s standards and qualifications.”
“This tool will help you interview a financial advisor so you can understand … what obligation the advisor has to you,” the online tool states on the first screen. “Some advisors are required to act in your best interests, while others are simply required to offer suitable investments. This can mean being offered an investment consistent with your interests but that could result in higher compensation for the advisor.”
The dearth of a fiduciary rule for any financial professional who isn’t a registered investment advisor is a driving force behind the new online tool. “The U.S. Department of Labor approved a fiduciary duty rule in 2016 requiring that advisors managing retirement savings accounts meet the “best interests” standard. However, last year DOL announced a delay until 2019 in implementation of major provisions of the rule,” the AARP and NASAA said in a joint statement.
“Many people can benefit from working with a financial professional, but they just don’t know where to start when it comes to selecting one,” said NASAA President Joseph P. Borg. “Interview an Advisor provides guidance on the types of questions to ask an advisor and helps frame the discussion to empower investors in the selection process. At a minimum, we encourage investors to check out the background of a potential financial advisor with state regulators. Investors also should make sure they understand the products and services being offered and the fees they will be paying,” said Borg, who is also director of the Alabama Securities Commission.
“Interview with An Advisor” begins and ends with the same investor quiz: