New York City Comptroller Scott M. Stringer is proposing a statewide law requiring financial advisors to disclose whether they put their own financial interests above those of their clients.

Stringer says most New Yorkers assume that their financial advisors have a fiduciary duty toward their clients, though that’s not the case. To fix this misconception, he’s proposing a state law that will force advisors to tell clients where they stand in plain language.

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Under the new rules, advisors would have to tell new clients: “I am not a fiduciary. Therefore, I am not required to act in your best interests, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks, and expected returns for you.”

The law would be the first of its kind, says Stringer in a release. He is also in favour of a country-wide fiduciary standard for advisors, saying that suitability standards are too permissive.

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The lack of a fiduciary standard costs American investors billions. U.S. President Barack Obama’s Council of Economic Advisers recently found that high fees, conflicts of interest, and poor investment practices permitted by the suitability standard costs investors up to $17 billion annually. The same report found that savers receiving ‘conflicted’ advice can lose up to 1% on investment returns – eventually reducing a middle class family’s retirement assets by more than a quarter.

The U.S. government has signaled there may soon be stricter standards for financial advice. Obama recently called for the Department of Labor to issue a new rule requiring all retirement advisors to abide by the fiduciary standard. Last week, Securities and Exchange Commission Chairwoman Mary Jo White commented that her personal view was that a “uniform standard” for financial advisors was needed.

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This all sounds wonderful for the consumer, but who determine what’s in a clients best interest? lately, most articles on this topic focus on fees and how clients are seemingly all in high fee investment options. Does this mean that an advisor who puts a client in an actively managed Mutual Fund instead of a passive ETF is not doing what’s in a clients best interest? Also, there is a fundamental difference in opinion among the advisor community between using managed money versus a portfolio of stocks and bonds. Who decides which is in a clients best interest, as arguments can be made on both sides for which is in a clients best interest. Just curious as I’ve never read an acticle that discusses this aspect of the so called Fiduciary Duty.

Thursday, March 26 @ 10:27 am //////

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