Financial planners have had to uphold a fiduciary standard on their clients’ investments since June 2020. Since then, we have needed to be increasingly aware of which firms make available the most investment choices at the best prices without conflicts of interest.

Surprisingly, few independent broker-dealers make the cut. But most of the RIAs we work with at our recruiting firm do. Here’s our criteria for broker-dealers or RIAs we could call “fiduciary focused”:

  1. They have no proprietary advisory platforms that can be construed as posing a conflict of interest. (We allow some grace on this one if the firm doesn’t push its proprietary platforms or give advisors pricing advantages to use those platforms.)
  2. They don’t mark up third-party money managers’ fees.
  3. They are friendly to dual clearing with Schwab and Fidelity IWS and don’t impose platform fees on advisors for holding these assets away.
  4. They keep the pricing on advisory administration fees, which covers billing and performance reporting, as low as $50 per account annually or keep the basis points on assets at 3 basis points or less.
  5. They don’t manipulate advisors by telling them where to put client assets.
  6. They don’t charge platform fees to advisors for holding assets directly at a product company (by charging, for example, 5 basis points on turnkey asset management program assets held directly) and don’t put dollar charges on mutual funds (such as a $60 fee for a mutual fund held directly).

Over the last few years, broker-dealers have increasingly expressed frustration with advisors putting a large percentage of their book in mutual funds and put pressure on them to convert those assets into a fee-based platform. In the past, I’ve recommended that advisors looking for new homes consider fiduciary-focused broker-dealers when they are doing a large percentage of their business with advisory assets. But I’ve discovered that these fiduciary-focused companies are also a safe haven even for those advisors with mostly mutual fund business. These firms want advisors to do what is in the client’s best interest whether it’s through advisory or package products. They are not married to any one way to invest and realize both styles of investing can be appropriate and that it’s a matter of personal preference. They also don’t have a profit center bias, so they lack the motive to favor one investment style over another.

Broker-dealers have a choice: continue to do what’s in their best profit interest or do what’s in the client’s best interest. At many firms, the pendulum has swung in favor of profit motives. This has caused an uptick of advisors either getting their own RIA or joining RIAs so they can act in a way more favorable to the clients. Fiduciary-focused B-Ds will continue to attract advisors that want more choices and less expense for their clients.

In the end, the role of an independent broker-dealer is to supervise their advisors; to process advisors’ business, pay trails and commissions in a timely manner; and to keep advisors informed of regulatory changes. No more!

Jon Henschen is founder of Henschen & Associates, a recruiting firm placing advisors to independent broker-dealers and RIAs.

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