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News that some states are moving to shore up investor protections out of concern the Trump administration will weaken or outright repeal the federal “fiduciary” legislation, raises an important question: How do I tell if I’m working with an honest broker?

For starters, relax. Most brokers are honest to a fault. Besides, there are ways to detect a bad broker that are not especially difficult to apply.


The Importance Of The Fiduciary Rule

You have likely read about and are familiar with the Labor Department’s fiduciary rule, unveiled last year that requires brokers to act in the best interest of retirement savers. This “best interest” standard is an improvement over the previous “suitability” standard.

The rule partially went into effect in June but remains in question after President Trump ordered the Labor Department to re-evaluate the economic impact of the rule with an eye toward repeal or revision. Therefore, several states have been looking to go beyond the federal rule and require brokers to uphold a fiduciary standard across all accounts.

A Question Of Custody

Is your account in your name or the name of your adviser? If the adviser, they have custody and that may not be a good thing for you – if they are dishonest. That’s because your adviser in that case has access to your funds. If they mishandle them, that’s against the law.


In 2009 the government passed the “Custody Law” to try to prevent advisors or brokers from gaining access to your money. Most advisors use third party custodians like TD Ameritrade, Fidelity or Schwab.

Back To Custody

Your broker or adviser might have custody of your money and not even know it. Your broker or adviser may be considered to have custody of your money if: your adviser is the trustee of your trust; can write checks for you; can pay bills for you; your money and your adviser’s money are commingled in the same account; you don’t get a quarterly statement from a 3rd party custodian.

How To Safeguard Your Funds

Start by making sure your adviser isn’t doing any of the 5 things mentioned above. Specifically, don’t appoint your adviser to be your trustee on your trust, give them access to your money, let them sign checks or pay your bills. Don’t commingle funds with them, insist on 3rd party statements every month and – this one is obvious – ask your broker or adviser if he has technical custody of clients’ accounts.

FINRA Not Much Help

FINRA doesn’t publish a “worst brokers” list. In fact, FINRA won’t let you search its database. You can look up a broker’s employment background and disciplinary history but complete access is not available.


What You Can Do

Look the broker up on BrokerCheck or through a state securities regulator. Is the broker pushing a limited number of products? Ask about commissions and compare them with no-load mutual funds. Are their income funds advertised as “principal protected?” Keep in mind only FDIC-insured products are truly “principal protected.”

Is the broker moving around a lot – from one firm to another? If so, check customer complaints, fines, sanctions and other indicators of bad behavior. Is the broker a fiduciary? That’s a big plus.

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