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Non-Fiduciaries Behaving Badly

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It should go without saying that doing business should always involve doing the very best for the person on the other side of the handshake. Unfortunately, this is not a requirement from a legal standpoint. The concept of caveat emptor, or “buyer beware” pervades business dealings on a daily basis and consumers must use their own discretion to determine whom to entrust with their personal needs.

One of the biggest problems with caveat emptor, as it applies to personal wealth management, is that financial markets and products are not easy to understand. Similar to other fields such as law or medicine, becoming proficient in a particular field of study often takes years. If someone were to Google, “how to become a great investor,” more often than not they are going to find information that is not going to be in their best interest. Trust law protects consumers when it comes to law and medicine, as these professionals are required to act in a fiduciary capacity for their clients and patients. Wealth management? Not so much.

Although many Americans assume that their financial professional is acting in their best interest, it is important to understand that for some professionals, acting in someone’s best interest is not a legal requirement. If you are acting as a “broker,” you are held to the legal standard of “suitability,” which is less stringent in terms of what professionals can buy and sell for investors. Index Fund Advisors, on the other hand, holds itself to a fiduciary standard of care that requires that we always put the interests of our clients ahead of our own. We don’t want our clients to have second thoughts about whether or not our guidance is in their best interest. In our opinion, it is the right way of doing business in wealth management.

We recently came across a list of significant fines imposed over the last 5 years on those acting as non-fiduciaries by the Financial Industry Regulatory Authority, Inc. (FINRA) that we wanted to use to shed light on some of the potential threats investors may face by choosing to not work with a fiduciary. This list is not exhaustive of the fines imposed by FINRA.


1.     Failure to Supervise Sale of Variable Annuities:


FINRA ordered the firms to pay the following to investors:



2.     Failure to Protect Records from Alteration (Cybersecurity Breaches):



3.     Overcharging Clients in Unit Investment Trusts (UITs):



4.     Improper Sale of Real Estate Investment Trusts (REITs):




5.     Widespread Failures in Anti-Money Laundering Compliance Program:



6.     Misleading Annuity Customers:


7.     Improper Sale of Leveraged and Inverse Exchange Traded Funds (ETFs):


8.     Improper Sale of Penny Stocks:


9.     Improper Sale of Puerto Rico Junk Bonds:


10. Overcharging Clients on Mutual Fund Expenes:


11. Failure to Prevent Conflicts of Interest in Compensation Policy

VALIC Financial Advisors - $1.75 million

Investors should have full transparency when it comes to deciding whom to entrust with their personal assets. Further, understanding the legal protection associated with working with certain professionals is as equally as important. Working with an independent fiduciary advisor helps to mitigate many of the expensive pitfalls that are associated with a large swath of the financial services industry.