Revealed: Broker-dealers’ public enemy #1

investmentnews.com:

Chuck Failla, of Sovereign Financial Group, has built a reputation for his critical stance on the broker-dealer model. A staunch advocate of the Registered Investment Advisor (RIA) approach, he underscores the growing demand for fiduciary advice as a significant driver of the RIA sector’s expansion.

“There’s a big difference between the broker-dealer model and the RIA model,” Failla states.

The former is often commission-based and lacks a strict fiduciary standard, while the latter is mandated to act as a fiduciary.

Failla’s criticism of the broker-dealer model stems from what he believes are its inherent conflicts of interest.

“I stand by my critical stance of the broker-dealer model as an advice delivery solution,” he says. “That said, while I do believe the broker-dealer model is a very poor advice delivery solution, I do believe it is a very good product delivery solution.”

But he explains that clients often struggle to distinguish between salespeople and advisors, leading to confusion about the nature of the advice they receive. “There’s nothing wrong with selling a product, but there is a problem if a consumer cannot discern who is a salesperson selling them a product, as opposed to an advisor who’s giving advice,” he says.

The broker-dealer model, according to Failla, can put undue pressure on advisors to sell specific products. “Commission does a pretty good job in biasing the folks. If someone has the ability to sell product A and product B but product A is gonna pay them twice as much, they might choose to do the right thing, but they are certainly incentivized to do the wrong thing.”

Fiduciary standard

Failla prefers to rely on fiduciary advisors who are obligated to act in their clients’ best interests