Acting in the best interest of the client

FINRA – the Financial Industry Regulatory Authority – has come out strongly stating that most compliance problems would be eliminated if investment firms acted in the best interest of their clients.   It may surprise you to learn that this is not a requirement for the major brokerage firms.  The brokerage industry must only insure investments are suitable for clients.  There are lots of investments that are “suitable” but not in be in your best interest.

For example, an annuity may be suitable for a client but it may not be in the client’s best interest.  Many brokers are encouraged to sell these investments because they earn large commissions.    The typical broker has many opportunities to choose between products that have different commissions.  You can imagine the temptation to choose the product with the highest commissions.

“A central failing Finra has observed is firms not putting customers’ interests first,” ….“Irrespective of whether a firm must meet a suitability or fiduciary standard, Finra believes that firms best serve their customers — and reduce regulatory risk — by putting customers’ interests first. This requires the firm to align its interests with those of the customer.”

Ask your broker if he is required to act as a “fiduciary” or is held to a lower “suitability” standard.  Korving & Company is held to the fiduciary standard and none of our revenue comes from commissions.

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