Broker compensation
originally posted: 11/22/2006 reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email asktony@tonynovak.com.
Q: I read your article about undisclosed compensations from brokerage accounts but it sounds hard to believe. Why would anyone choose to pay higher fees and commissions?
A: Most investors do not understand the difference between Registered Investment Advisers and Registered Representatives (brokers). A survey of 1200 investors done by an independent firm in late 2004 revealed some surprising news. Most investors do not know that brokers are not required to disclose all types of compensation. Most investors do not know that a broker does not have a fiduciary responsibility to the investor. In fact, brokerage firms disclose in the fine print of their accounts that investment advice is "solely incidental" to the brokerage business. 80% of investors surveyed indicated that they would change from a stockbroker to an independent adviser if they had known So the issue seems to be primarily one of understanding the issue and secondarily, the fact that their are far more brokers than independent advisers, especially for investors with modest accounts.
Summary
More resources:
resource list goes here