Infographic: Conflicts of Interest at Financial Advisor Firms
Written by investor.com
Hiring a financial advisor firm? Watch for risky business
When seeking professional financial advice, it’s crucial to research a firm’s background and ask questions. Data from investor.com shows that disciplinary history and conflicts of interest are much more common at a specific type of financial advisor firm — which could put your money at risk.
- Registered investment advisors (RIAs): RIAs are advisor firms that manage clients' investment portfolios. RIAs are registered with the U.S. Securities & Exchange Commission (SEC) or a state regulator. They are required to act as fiduciaries, putting their clients’ interests above their own.
- Hybrid RIAs: Hybrid firms wear two hats: RIA and broker-dealer. Broker-dealers buy and sell securities for themselves or on behalf of customers. Broker-dealers are not held to a fiduciary standard, which means that hybrid RIAs are fiduciaries some of the time, but not all of the time.
Of the 17,000+ firms studied by investor.com, 11.3% are hybrid firms, but hybrid firms manage a total of $49.9 trillion in client money, compared with non-hybrid firm’s $10.4 trillion in client funds.
Operating as a hybrid firm does not automatically mean a financial advisory firm should be avoided. There are ethical hybrid advisor firms. But hybrid firms have a higher percentage of disciplinary actions and conflicts of interest.
What this means for you
If you’re seeking a financial advisor, look up the firm’s conflicts and regulatory history. You can quickly find this information, as well as definitions for conflicts of interest and disciplinary actions, using the financial advisor search tool on investor.com.
Hybrid vs. non-hybrid RIA firms: What the investor.com data show
Disciplinary history
Percentage of firms reporting each disciplinary action:
| Non-hybrid RIA firms | Hybrid RIA firms | |
| Regulation violations | 5.6% | 53.5% |
| Order entered | 3.2% | 28.6% |
| Monetary penalty | 0.8% | 14.9% |
| False statements or omissions | 1.2% | 15.4% |
| Activity restriction | 1.3% | 8.2% |
| Registration/license revocation | 1.1% | 6.1% |
| Business license revocation | 0.5% | 1.8% |
| Dismissal upon settlement (court) | 0.3% | 1.6% |
| Investment-related prohibition (court) | 0.1% | 1.6% |
| Felony conviction | 0.04% | 1.9% |
| Attorney/accountant authorization revocation | 0.09% | 1.2% |
| Misdemeanor conviction | 0.05% | 1.1% |
Conflicts of interest
Percentage of firms reporting each conflict of interest:
| Non-hybrid RIA firms | Hybrid RIA firms | |
| Insurance agent conflict (affiliation) | 13.6% | 49.2% |
| Insurance agent conflict (firm) | 11.7% | 37.4% |
| Proprietary products | 6.4% | 26.1% |
| Private investment management | 5.2% | 21.1% |
| Commissions conflict | 1.8% | 12.0% |
| Attorney conflict | 2.8% | 4.7% |
Data as of Sept. 4, 2023 | Numbers have been rounded
* This data is pulled directly from firms’ SEC Form ADV. In some cases, the same disciplinary action is reported in multiple places on Form ADV and/or by more than one regulatory agency; we have grouped identical disciplinary actions into one data point.
Data used
Here's a summary of the regulatory and proprietary data we collect to rate and review Registered Investment Advisor (RIA) firms.
Conflicts of interest
- Attorney Conflict (ADV Part 1 Items 6.A.13, 7.A.11)
- Commissions Compensation Conflict (ADV Part 1 Item 5.E.5)
- Insurance Agency Conflict (ADV Part 1 Item 6.A.6)
- Insurance Affiliation Conflict (ADV Part 1 Item 7.A.12)
- Private Investment Management (ADV Part 1 Item 8.B.2)
- Proprietary Investments (ADV Part 1 Item 8.A.3)
Disciplinary history*
- Activity Restriction (ADV Part 1 Item 11.E.4)
- Attorney/Accountant Authorization Revocation (ADV Part 1 Item 11.F)
- Business License Revocation (ADV Part 1 Items 11.C.3, 11.D.3, 11.E.3)
- Court-Ordered Investment-Related Prohibition (ADV Part 1 Item 11.H.1.A)
- False Statements or Omissions (ADV Part 1 Items 11.C.1 11.D.1, 11.E.1)
- Felony Convictions or No Contest Pleas (ADV Part 1 Item 11.A.1)
- Investment Related Dismissal upon Settlement (ADV Part 1 Item 11.H.1.C)
- Misdemeanor Conviction (ADV Part 1 Item 11.B.1)
- Monetary Penalty (ADV Part 1 Item 11.C.5)
- Orders Entered (ADV Part 1 Items 11.C.4, 11.D.4)
- Registration/License Revocation (ADV Part 1 Items 11.D.5)
- Regulation Violations (ADV Part 1 Items 11.C.2, 11.D.2, 11.E.2, 11.H.1.B)
*Disciplinary actions may have been brought by the SEC, CFTC, a self-regulatory organization (SRO), a commodities exchange, other regulatory agencies, or a domestic, foreign or military court.
Questions?
If you have any questions, please reach out to Andrea Coombes, head of advisor research at investor.com.
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