Commissions Create Conflict

A broker who receives a commission with every trade is acting in conflict with a client’s best interest, and therefore, not acting as a fiduciary for the client. In fact, in April 2005, the SEC set forth regulations that require commissioned financial professionals to include the following language on their advertising materials:

“Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interests. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.” This language reveals the all-too-common discrepancies that arise between a broker’s and a client’s goals.

Step 12SECFiduciaryBest InterestConflict of IntrestCommission