Kitces nails it on Fiduciary Rule

Why Series 7 Brokers Legally CAN’T Be Client Fiduciaries Without DoL Fiduciary

Executive Summary

being a fiduciary matters, and Series 7 licensees technically CAN’T be full fiduciaries to their clients without the DoL fiduciary rule.The key issue is that the Series 7 exam is technically the “General Securities Representative Examination”. This name is important, because it indicates that ultimately, the licensee is acting as a representative of the broker-dealer. In other words, a Series 7 license allows an individual to represent the broker-dealer in the sale of securities products to clients. This is why Series 7 licensees are referred to as “Registered Representatives” of a particular broker-dealer.

And as a representative of the broker-dealer, the broker technically has an obligation to serve the broker-dealer, not the client. This is why a broker-dealer can terminate a broker for outside business activity, or for soliciting a client to move with them to a new broker-dealer. In fact, technically the client isn’t even a client of the broker’s; it’s a client of the broker-dealer’s, and the broker is just the sales representative. That’s why it’s illegal for the broker to take any client information when changing broker-dealers!

Of course, in today’s environment, the overwhelming majority of those working at a broker-dealer are dual-registered as a sales rep under the broker-dealer and working under a corporate RIA. Nonetheless, anytime the broker sells a product and earns a commission (i.e., using the Series 7 license), the broker is not a fiduciary, but a sales representative! Notably, these advisors are fiduciaries when they give under the RIA and are paid an advisory fee. But they are still effectively wearing two hats, and cannot be full fiduciaries while the Series 7 hat is on!

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