Brubaker: Investors need to know they can trust financial advisers

Most people assume that their doctor is offering advice that is in the patient’s best interest.

We don’t make that same assumption with auto dealers or other commissioned salespeople. We know they’re working on commission, so we spend more time researching and independently verifying the facts — not because salespeople are bad people, but because we know there can be a conflict of interest between what’s best for them and what’s best for us.

Unfortunately, when customers do business with brokers who hold themselves out as “financial advisers,” all too often they act as though they’re visiting a doctor instead of a car lot.

Just the opposite is true. Brokers — often called registered representatives — are paid commissions and receive incentives for their investment recommendations. They have no obligation to act in your best interest. They are held to a “suitability” standard, meaning the investment should be appropriate for a client, but doesn’t have to be the best. In contrast, investment advisers are held to a “fiduciary standard,” which means they’re legally required to act in your best interest. A White House Council of Economic Advisers study showed that retirement savers lose $17 billion annually from being sold high-fee investments

A new regulation from the U.S. Department of Labor seeks to make sure anyone who calls himself an “adviser” offers financial advice in the investors’ best interests.

Predictably, investment brokers and their lobbyists have sought to cast this as “over-regulation” and claim it will drive up the cost of investment advice.

It’s a dubious claim at best. Brokers who have been lining their pockets at retirees’ expense recognize that as consumers become more educated about the money they’re giving away to the large brokerage firms, they’ll start asking much tougher questions about fees and alternatives to the investments their advisers are so aggressively promoting.

The Labor Department should continue on course with its rule change to put retirees ahead of the brokers’ lobbyists. But until then, there’s nothing to prevent you, the investor, from getting educated and asking tough questions now.

This story was originally published March 5, 2016 at 10:13 AM.