The long-running battle for the interests of American investors continues.

Imagine that your doctor writes you a prescription for a certain medication – even though a better, less expensive option is available – and receives a commission from the drug company for the prescription.

If caught for doing so, the doctor would risk losing their licenses, and potentially face legal penalties.

Regrettably, the same isn’t true for financial advisers in this country. According to a recent article in the Wall Street Journal, of the nearly 300,000 professionals in the US that offer investors financial advice, fewer than 2% are “fee-only” advisors who avoid commissions on products recommended to their clients, and who act as true fiduciaries by always putting their clients’ interests first. The other 98% are either brokers or dual-registered broker-advisory firms. They accept commission payments from mutual fund companies and insurers for products they sell to their clients.

Brokers claim they disclose all potential conflicts of interest in the paperwork their clients sign. Yet numerous studies have shown that clients don’t understand these dense, lengthy disclosures, or how much they’re paying in fees.

Brokers also claim they’re subject to strict oversight. But that claim is an exaggeration, as they are directly regulated by Finra, an industry self-regulator. In contrast, fee-only advisers are subject to continual oversight by the SEC and state governments.

An increasing number of countries, including Australia and the UK, are banning commission-based financial advice. The US financial services industry, though, continues to successfully lobby to protect commissions.

It should be clear that not all brokers who call themselves financial advisors are bad actors. But free enterprise only works well when customers (read investors) are not being duped. When they are tricked, paying hidden commissions that end up costing them far more than they thought, effective regulation is needed to protect them.

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