Know Your Investor Rights – Honest, Competent and Ethical Conduct

According to the CFA Institute, a global organization of investment professionals, you as an investor have certain rights - 10 to be exact.


These rights were developed to advise buyers of financial service products of the conduct they are entitled to expect from financial service providers such as financial and retirement investment firms. Here’s an inside look on the first investor right as established by the institute:


When engaging the services of financial professionals and organizations, you have the right to honest, competent, and ethical conduct that complies with applicable law.


When securing investment services, it’s important to know about and understand the competency of your financial advisor. While the leading national brokers hail some 15k financial advisors per investment company, their competency can fluctuate. Unlike legal, medical and accounting fields, the barriers to entry into the financial sector are very low. For example, the investment field commonly encounters new financial advisors that were in a totally unrelated field prior to entry.


Let’s think about this for a minute.

Imagine you were in the business of selling cars one day and the next you decided to become a medical doctor or lawyer. To achieve the competency needed to become a doctor or lawyer, a multi-year investment in education and training is required. To become a financial advisor, all many people need to do is pass the Series 7 exam. This exam can be completed in a couple months or even weeks! Upon the completion of the exam, one could practice in the field of investments after only a few weeks of training.

To judge financial education, one must realize each financial designation (Chartered Financial Analyst, Chartered Financial Consultant, Certified Financial Planner, Certified Investment Management Analyst, Certified Fund Specialist, etc.) has varying levels of difficulty. Some take multiple years of study while others can be obtained with a credit card.

To understand competency in terms of financial advising, you need to learn about the multiple education avenues for investment management. The largest pools of money in the world (Pensions, Foundations, Mutual Funds, etc.) expect the highest level of competency/training, yet training for financial advisors that most Americans use have a significantly lower or non-existent competency bar. That’s a problem.

The largest pools of money require the highest skill level to invest. The Chartered Financial Analyst or CFA is known as the “Gold Standard” in the investment management field according to the Financial Times. This designation is equivalent to a CPA, but on the investment side. Working with a CFA may not be an option for all investors due to asset minimums at some investment firms, but you can still work with competent individuals. At minimum, working with someone that has a CPA, CFP, ChFC, or CIMA designation indicates the advisors desire to obtain additional financial knowledge above the low competency bar. The additional financial education means the advisor respects the complexities in the financial markets and represents the desire to better understand the investment market versus the desire to better understand how to sell investments.


The key takeaway here, is to remember that it’s tough to do what’s in the client’s best interest if the financial advisor doesn’t have the required competency level.

Accessing the ethical conduct of your advisor is a gray area, but it can be (and should be) done.

It’s not easy for the general public to access the ethical nature of their advisors. For example, a past client of mine had an investment advisor doing many unethical things to their retirement account, but they weren’t aware of the conduct. At the same time, the client was actually happy with the advisor because they had a strong personal relationship. And when you have a good relationship, trust comes more naturally, but that doesn’t mean they have your best interests in mind.

One way to verify the potential ethical conduct violations of your advisor is to perform a type of investment advisor background check. To do this, go to a website called Broker Check established by FINRA (Financial Industry Regulatory Authority) and enter in your investment advisor’s name, then read the results and make your choice based on their history of conduct. Beyond understanding the past transgressions of your advisor, you can go one step further by accessing the ethics of the actual investment firm. This same service will allow you to review your investment firm for potential unethical behavior. Use it as well!

Don’t judge a book by its cover. While working with the largest investment firm may sound like a good idea (they are recognizable and seem to present themselves as true experts after all), be careful. Big brokerage firms employ investment advisors that work in independent silos for the most part; going with a big name doesn’t mean the 15k advisors of that company are actually looking at your investment account.


Don’t use a company’s marketing reputation to judge competence.

The bottom line is to stop assuming that all financial advisors are cut from the same cloth – because they just aren’t. Take your time and do your homework, you’ll be happier for it – we promise!

Use our article that outlines 5 Questions to Ask Your Financial Advisor as a guide when deciding who is the right financial partner for you.


Don’t hesitate to contact us with any of your financial questions.


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Kroon & Mitchell
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Grand Rapids, MI 49503
Email: inquire@kroon.us
Phone: (616) 356-2002
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