Regency Wealth Management

Is your financial advisor bound by law to represent your best interests? Not knowing could cost you.

When dealing with financial advisors, consumers are frequently under-informed about the type of advice they may get. Typically, Advisors fall into two different roles: Brokers who receive a commission for products sold to their clients, and Investment Advisors who receive a fee for their services. The distinction could impact far more than the initial cost.

Investment Advisors who are compensated via fee are held to a fiduciary standard and are required by law to act in the overall best interest of their clients. Brokers are typically paid by commission and are held to a different standard, requiring only that the products they recommend be suitable.

The difference between best and suitable can be costly for investors. Unfortunately people may focus on the transparent fees of working with an advisor while misunderstanding the underlying costs that may be embedded in commission based financial products, as well as miss the implication of the difference in accountability.

Such was the case recently when Mark Reitsma, CFP®, partner at Regency Wealth Management, sat down with a potential client to review her investment portfolio and sizeable asset base. The client had been advised by a Broker, she assumed was acting in her best interest.

At the end of the review, Mr. Reitsma had identified that she had purchased: variable annuity contracts carrying total annual expense fees of between 4 and 4.5%, a questionable life insurance policy that required a very large initial single premium, two illiquid real estate investments, and a single large position in a floating rate high yield bond fund. The client, who considered herself a conservative investor, was completely unaware of the total cost she was paying for these products, had little understanding of how they worked, and clearly did not realize the total amount of market and liquidity risk that she had in her overall portfolio. Further research indicated that the broker she purchased these products from did not have a perfect record with the both the Financial Industry Regulatory Authority and the NJ Department of Banking & Insurance.

In the case of this client, paying the fee for an Investment Advisory relationship and/or a financial plan would have been far less costly than the fees embedded in the products she purchased, Mr. Reitsma said. And, she would have purchased a higher level of service by paying someone who would have a fiduciary commitment to her financial well-being.

“Before hiring an Investment Advisor or Broker, ask him or her what standard they will adhere to–suitability or fiduciary, how they will be compensated, and research their professional history with regulatory agencies.” Mr. Reitsma advises. “And, always be sure that you fully understand any investment before you agree to purchase it.”

Investors can check the regulatory status of Investment Advisors and Brokers at

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