Self-Regulation by Financial Advisors on Wrong Track

Fellow blogger and former financial advisor Preet Banerjee at WhereDoesAllMyMoneyGo has brought to my attention that financial advisors are threatened by more government regulation as a result of recent scandals and rip-offs by advisors. It is being suggested they self-regulate. Certainly preventing fraud by advisors is a primary concern because the client loses everything when that happens.

Whether it's government regulation or self-regulation, criminal fraud is not the only problem advisors have. The other big, somewhat hidden issue is what might be called abuse of fiduciary duty. Though seemingly not illegal, too many so-called advisors are nothing more than sales people in disguise, who fail in their moral obligation to do best by their clients by investing them in high-MER mutual funds on the basis of trailer fees and who provide little of value in the way of investing or financial advice. Advisors can be extremely beneficial for the investing public, but if the relationship is to be based on trust as the article says, then they need to work in the client's best interest first and not secondarily after their own fee income goals are met.