The Right to Full Disclosure
Why this financial regulation is so important to you as an investor
The Issue
The concept of full disclosure, as it relates to your relationship with an investment provider, is probably not a hot topic at your dinner table. We think it should be.
Whereas investors expect that their own interests be placed at the forefront of the advisor/client relationship and that they be given any and all meaningful information relevant to their financial decision making process, most investment providers are under no legal obligation to meet these basic demands.
That’s a big problem with serious implications for your success as an investor.
Recent surveys indicate that over three quarters of individual investors are confused about the topic of disclosure and the implications this regulation has on their financial well being. This newsletter will shed some light on the subject, provide you with actionable steps that will help you identify the type of relationship you have with your investment advisor, and help you enhance your financial peace of mind.
The Problem
Full disclosure refers to an investment professional providing his or her clients with any and all meaningful information relevant to their financial decision making process. An advisor legally bound to these rules must fully disclose to clients in writing their specific services and fees, their compensation structure, the types of clients they serve, their educational background, details regarding any industry related disciplinary action, their business activities and affiliations, and any conflicts of interest that might affect the objectivity of the advice they deliver.
Investors want and deserve this type of relationship with their investment advisor, but few get it. A marketing survey recently conducted by Humboldt State University documented that local investors deemed full disclosure to be the most important aspect when deciding who to trust with their investments. The unfortunate reality, however, is that the vast majority of financial professionals operate under the more conflicted regulatory environment of partial disclosure (also described as meeting suitability requirements).
The partial disclosure rules cloud the objectivity of advice one receives and contribute directly to the disconnect between what clients want, need and expect and what the financial services industry actually delivers. Representatives of brokerage firms, banks and insurance companies (also called investment consultants, financial advisors, or registered representatives) fall under the lax regulatory umbrella of partial disclosure. Certified Financial Planners and representatives of Registered Investment Advisors are legally bound to full disclosure requirements.
Why This Matters to You
We believe that working with an advisor bound to full disclosure rules is a huge benefit to clients.
Full disclosure lays the foundation for the trusted advisor relationship investors want. Knowing that your financial professional is legally obligated to inform you of all material factors that might influence your decisions creates a level of trust upon which a meaningful, long-term financial relationship can be built. This in turn, will enhance your financial peace of mind and help you put aside any fears that your advisor might have something other than your best interests at heart.
A relationship based on full disclosure helps minimize the conflicts of interest that have plagued our industry (and perhaps your own investment success) for years. Under full disclosure rules, for example, a client would be informed that a given recommendation was driven more by the advisor’s own financial incentive or the firm’s desire to promote a given product, rather than be given the impression that the recommendation was genuine or unbiased. This would level the playing field between the client and advisor and go a long way toward repairing the poor reputation of the financial services industry.
Recommended Actions
Knowing how important the concept of full disclosure is, we would recommend the following:
- Envision what this type of relationship could mean for your success as an investor and for your financial peace of mind.
- Read the enclosed article titled “The Fight Over Who Will Guard Your Nest Egg” by Jason Zweig.
- Ask your current advisor if he or she is held to full disclosure rules. If so, ask for a signed acknowledgement by management that this is indeed the case.
- Assuming that your advisor is bound to the partial disclosure or suitability standards that apply to the vast majority of investment professionals, seek a second opinion from a Certified Financial Planner or Registered Investment Advisor regarding the current makeup of your investment portfolio and financial plan.
Our Offer
As Humboldt County’s only locally-owned Registered Investment Advisor, we welcome the opportunity to help you learn more about what separates us and other firms like ours from the majority of investment providers. Our team is proud to operate under full disclosure with clients and potential clients. If you would like to receive a copy of the disclosure information regarding our firm and our team, please contact Lauren Marchbanks at (707) 443-2741. Take control of your financial future and seek out an advisor who will always put your interests first and fully disclose all the information you need to make decisions about your financial future.
