Should Fiduciary Advisors Accept Commissions?

On the heels of the CFP’s ongoing debate about the definition of a “fee only” advisor and pending SEC and DOL rules on the definition of fiduciary, ThinkAdvisor editor-at-large Bob Clark raises the question of whether a fiduciary advisor can or should accept commissions. The question was asked by an advisor who indicated that they wanted to be a fiduciary, yet there are some cases when recommending a commissioned-based product might be good for the client. 

There’s no doubt that the hybrid advisor model, where an advisor collects both fees and commissions, is growing in popularity. The CFP has cracked down on advisors who want to be classified as fee only. The SEC is contemplating a uniform fiduciary rule but cannot eliminate the use of commissions no matter what they decide to do. Meanwhile, the DOL’s so-called “conflict-free advice” rule expands the definition of fiduciary so much that many commissioned-based advisors would be considered fiduciaries, raising the question of whether IRA holders with lower account balance will lose access to their commissioned-based advisors.

Clark says that advisors that sell commission-based products are legal representatives of the manufacturer and that the interests of their clients may be compromised as a result. Though an advisor selling commissioned products could act in the interests of clients, there is no legal obligation to do so, and clients are likely to be confused. 

Clark’s conclusion: To avoid this confusion and potential conflict, fiduciary advisors should not sell commissioned-based products, even though marketing as a “fiduciary advisor” can be powerful. What do you think? Use the comment link below.