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By Christine Benz | 03-23-2010 01:04 PM

Is Your Broker Up to the Standard?

The legal standards required of brokers may not match investors' expectations of a fiduciary relationship, says Harold Evensky of Evensky & Katz Wealth Management.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. I'm here today with Harold Evensky. He is the president of Evensky & Katz Wealth Management. He's also very much a thought leader in the world of financial planning. So I'm excited to have Harold here today. Harold, thanks for being here.

Harold Evensky: Well, thanks. I'm excited to be here.

Benz: Harold, I know that you have been a big proponent of the financial services industry adopting a fiduciary standard for anyone purporting to be delivering financial advice. Can you talk about what that standard means?

Evensky: Yes, it's really about mom and apple pie. The regulatory environment for the brokerage industry is a business standard, a caveat emptor. You're kind of on your own.

A fiduciary is really some simple concepts. A fiduciary needs to place the interests of their client first. They need to eliminate any conflicts of interest that they can. And those they can't, they simply need to disclose and provide advice at a professional level.

So, really, I think that's what most investors expect of who they're dealing with. Unfortunately, that's not the rules of the law as they stand today.

Benz: So there are currently people who are not operating under a fiduciary standard. And the idea is that they have to simply be presenting investment ideas that are appropriate versus best.

Evensky: Exactly. The brokerage industry is held to what is called a suitability standard. It means the advice needs to be suitable. It doesn't need to be in your best interest. There may be all kinds of conflicts. And there's no requirement to, in effect, represent the investor.

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