The Worst of Both Worlds? Dual-Registered Investment Advisers

Abstract

As fiduciaries, Registered Investment Advisers (RIAs) must place client interests ahead of their own. Many fiduciaries are dual-registered as brokers (DRs) and have potential conflicts of interest including revenue sharing from mutual funds, receiving asset-based fees and transaction-based commissions on the same security, and preferential treatment of affiliated mutual funds. Regulators frequently discipline DRs for these conflicts. DRs charge their retail RIA clients higher fees than their brokerage clients or clients of independent RIAs. Finally, DRs prefer institutional share classes of the same underperforming mutual funds they offer brokerage clients. Many DRs appear to fall short of the fiduciary standard.

Keywords: conflicts of interest, registered investment advisers, brokers, dual registration, mutual funds