Broker Regulation Matters to Investors – Registered Investment Advisor

By | November 23, 2017
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Why Broker Regulation Matters to Investors – Registered Investment Advisor

Most investors invest their money according to their adviser recommendation. Obama administration has proposed new financial consumer protection agency and government bailouts of large financial companies. Chances are open for all that if person go to an insurance agent, he will recommend for annuities, if they go to a broker, they advised to invest in stocks and if they go to investment adviser, they would be recommend for investment in mutual fund.

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Regulation of investment advisers

Before taking advice from any analyst, personal research of market also becomes helpful. Most of the time, your research and advice given by them have similarities and if you are right then why should pay commission and fees to them. If you are not getting time for research then probably you can afford this.

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Investment advisers are regulated under the Investment Advisers Act, 1940 whereas brokers are treated under other act. Experts of this field are saying that the fiduciary standards of this act are higher than regulatory standards for brokers. Brokers are supervised under the Financial Industry Regulatory Authority which is a self regulatory organization of the brokerage industry while Investment advisers are directed by the government regulatory bodies, Securities and Exchange Commission and state securities regulators.

By laws, brokers have to recommend products according to client’s demand. But many times they have to recommend and sell those products that their companies force to sell or such products that may earn them more commission and fees. On the other hand, investment advisers have to make full disclosure of fees as well as interest to their customers. In the event of a legal dispute, brokerage firms controvertible fiduciary liability which makes more difficult for plaintiffs to win claims.

At the time of enactment of securities laws, brokers were engaged in trade but currently they turned to providing advice to middle income people who are seeking for investment advice for their retirement which makes them investment advisers. Legal and regulatory differences had a significant impact on investors but most of them do not believe this.

According to arguments from brokers, SEC is only able to audit 9% of SEC regulated investment advisory firms; whereas FINRA can examine a majority of the brokerage firms it oversees. But Investment adviser groups oppose firmly being brought under FINRA. They argue that it is more geared toward the brokerage industry than the investment advisory industry. But actually, SEC requires both advisers and brokers to get reviews about group of customers.

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