RIAs Bear Heavy Fiduciary Requirements

February 17, 2012

By W. Andrew Unkefer

Recently, there has been a rash of organizations encouraging agents to become a registered investment advisor (RIA) or alternatively an investment advisor representative (IAR). In this second installment of a three-part series, we will explore the different responsibilities.

Fiduciary Duty Defined:

A fiduciary duty is the highest standard of care imposed by law. Fiduciaries must not put their personal interests before the client, and must not profit from their position unless the client consents. The fiduciary cannot have a conflict of interest. The fiduciary has a duty not to be in a situation where personal interests and the fiduciary duty conflict.

Investment advisors are literally selling advice. They are not executing trades or earning commissions on the sale of securities. An investment advisor should not earn commissions on the sale of insurance products without proper disclosure of the commission and consent from the client allowing them to further profit by receiving this commission.

The selling and disclosure of insurance products is not improved or legitimized by becoming an investment adviser. Fixed insurance products are not investments. Advising consumers on the purchase of insurance should only be done by licensed insurance agents. Compensation from the sale of insurance does create a conflict of interest that the investment advisor must properly address up front with the client.

If the conflict of interest is not evident to you, think of it this way. When you sell insurance products like Fixed Annuities or Fixed Indexed Annuities, you are contractually obligated, through your selling agreement, to represent the insurance company, not the consumer. Your role as the insurance agent is to determine if that insurance company’s products are suitable for the customer. An investment advisor is obligated to work on behalf of the customer as a fiduciary.

Conflict of Interest

Insurance Agent



Investment Advisor



Works for the insurance company



Works as a fiduciary for the customer



If you become both a licensed Insurance Agent and an Investment Adviser, you need to move with extreme caution. If this conflict of interest is not properly handled, you could easily be seen as violating your fiduciary duty. This can have a very grave impact on your future.

Additionally, if you are an Investment Adviser but your primary income is derived from the sale of insurance, you may be seen as using your Investment Advisor status as a scheme to lure people into the purchase of unsuitable products.

Further, if you are holding regular seminars and workshops to generate a new customer base and your content is primarily insurance related, you may be seen as acting deceptively if your content is not perfectly clear regarding your status as an insurance agent.

Understanding the investment advisor world:

There are three essential elements that characterize an investment adviser, according to the North American Securities Administrators Association:

1.     Provides advice or analysis on securities either by making direct or indirect recommendations to clients or by providing research or opinions on securities or securities markets.

2.     Receives compensation in any form for the advice provided.

3.     Engages in a regular business of providing advice on securities.

Before heading down the investment advisor highway, you need to ask yourself some serious questions.

  • ·         Do I want to give investment advice to consumers?
  • ·         Do I know what it means to be a fiduciary?
  • ·         Do I want to take on fiduciary responsibility?
  • ·         Do I want to create detailed financial plans and recommendations for each client I work with?
  • ·         Do I want to bill people for the advice I provide?
  • ·         Do I want to add additional regulation to my business?
  • ·         Do I want to add additional overhead to my business?
  • ·         Do I fully understand the regulatory and reporting requirements?
  • ·         Do I have the ability to provide a detailed financial plan for each customer based on their individualized needs?
  • ·         Do I have the ability to act as my own compliance officer?
  • ·         Do I or can I keep receipts and disbursements journals?
  • ·         Do I have the ability to maintain extensive records (18 items) with my current resources? These include keeping a general ledger, order memoranda, bank records, bills and statements, financial statements, written communications and agreements (including electronic transmissions), list of discretionary accounts, advertising, personal transactions of representatives and principals, client records, powers granted by clients, disclosure statements, solicitors’ disclosure statements, performance claims, customer information forms, suitability information and written supervisory procedures.

The investment world and the advice regarding investments covers an immense body of work. stocks, bonds, mutual funds, investment contracts, real estate investment trusts (REITs), options, futures, commodities, hedge funds…the list goes on and on.

Our final installment on this three-part series will conclude with an examination of becoming an Investment Advisor Representative under an existing RIA and reveal solutions for independent insurance agents who desire to protect their practice and grow.

W. Andrew Unkefer is the president and CEO of Unkefer & Associates, Inc., a national annuity and life insurance marketing firm.  The company’s goal is to be the No.1 resource for independent agents in their life and annuity business. He may be reached at 800.523.5851 or [email protected].

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John Westcott

8/18/2011 12:30:40 PM - San Francisco`

Excellent article.

Steve Thomas

8/17/2011 11:14:25 AM - Sioux Falls, SD

The author is right - If you are afraid to always do what's right for your clients don't become and Investment Adviser Representative for a Registered Investment Advisory firm. On the other hand if you sincerely have your client's best interestes at heart - and not just your own pocket books - then you have nothing to fear from becoming and IAR.

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