Sorta, Kinda But Maybe Not Really Fiduciary

Some investment advisers are fiduciaries, others sell products. Telling the difference has never been easy.

Leading discount brokers, for instance,  invite investors to talk with representatives who aren't paid commissions. Does that make them fiduciaries? Not in the view of The Wall Street Journal.

Investors who seek advice from discount brokerage firms might assume the counsel they get is impartial, given how these firms have rejected the old Wall Street model of working on commissions.

In fact, advisers at some of the biggest discount brokerage firms make more money if they steer clients toward more-expensive products, according to disclosures from the firms and people who used to work at them. That means customers could end up with investment products and services that are costlier than they need.

Fidelity's reps, for instance, get a small cut (0.04%) when a customer buys ETFs. Their financial incentive is more than twice as great (0.10%) if they sell managed accounts or annuities. Reps especially proficient at directing customers to pricey products get bonuses.

Fidelity, Schwab and TD Ameritrade all pay incentives to representatives for referring clients to registered investment advisers. "These advisers charge clients an annual percentage of their assets, and the discount brokerage firms receive up to 0.25% annually on assets committed to the advisers."

This year, at long last,  the SEC is expected to weigh in on the fiduciary issue. But the emphasis appears to be on disclosure rather than behavior. (Why should brokers call themselves "financial advisers"?) Knut A. Rostad of the Institute for the Fiduciary Standard asks, "Are commercial sales rules increasingly redefining the very meaning of fiduciary advice?"