The Fake Fiduciary Advisor

Jay D. Franklin CFA, CFP, FSA | Clarity Capital Advisors |

At Clarity Capital Advisors, we have consistently warned investors to stay away from dual-registered (fee-based instead of fee-only) financial advisors. These are the fine folks who collect both commissions (as registered brokers) and annual advisory fees (as registered investment advisors). Professor Nicole Boyson of Northeastern University has published an excellent article entitled “The Worst of Both Worlds? Dual-Registered Investment Advisers.” Here is the abstract:

As fiduciaries, Registered Investment Advisers (RIAs) must place client interests ahead of their own. Many fiduciaries are dual-registered as brokers (DRs) and have potential conflicts of interest including revenue sharing from mutual funds, receiving asset-based fees and transaction-based commissions on the same security, and preferential treatment of affiliated mutual funds. Regulators frequently discipline DRs for these conflicts. DRs charge their retail RIA clients higher fees than their brokerage clients or clients of independent RIAs. Finally, DRs prefer institutional share classes of the same underperforming mutual funds they offer brokerage clients. Many DRs appear to fall short of the fiduciary standard.

As Professor Boyson mentions, the annual advisory fees charged by dual registrants are substantially higher compared to independent registered investment advisors—40% higher for high net worth clients and over 80% higher for non-high net worth clients.

If you are still not convinced to avoid fee-based advisors, then please consider the findings of other researchers cited by Boyson such as being a dual registrant is a strong predictor of subsequent fraud or that dual registrants are 50% more likely to commit misconduct than standalone brokers (and that’s saying something). It’s also worth noting that dual registrants have been disciplined by the SEC with fees of over half a billion dollars for violations related to revenue sharing and share class disclosures. In fact, the SEC has recently taken regulatory action against Raymond James for inappropriately moving retail brokerage clients to fee-based accounts with much higher fees but without additional services warranting the higher fees.

Regarding dual registrants (fee-based advisors), Boyson reaches a devastating conclusion, “While these advisers might meet the letter of the law (frequent disciplinary actions aside), their potential conflicts, high fees, and poor investment performance imply that they are not serving their clients’ best interests.” This is why we have chosen to call them fake fiduciary advisors. If you would like to learn more about the advantages of working with a true fiduciary (fee-only) advisor, please call us at 800-345-4635 or email us at