Cambridge Investment Research (CIR) is a broker-dealer and registered investment advisor based in Fairfield, Iowa. As a dual registrant, CIR provides brokerage and advisory services to retail investors. This dual registration leads to questions around whether CIR and its financial advisors act as fiduciaries when providing investment recommendations and advice.
What is a fiduciary duty?
A fiduciary duty is a legal and ethical obligation to act in another party’s best interests. Fiduciary duties require financial advisors to:
- Make investment recommendations that align with the client’s goals and risk tolerance
- Avoid conflicts of interest
- Disclose fees, commissions, and other compensation
- Monitor the account on an ongoing basis
Advisors with a fiduciary duty must put their clients’ interests ahead of their own. They are legally required to provide advice that is in the client’s best interest.
When are financial advisors held to a fiduciary standard?
Whether an advisor is considered a fiduciary depends on the type of advice provided and the regulatory status of the firm.
Registered Investment Advisors (RIAs)
Registered investment advisors (RIAs) are held to a fiduciary standard under the Investment Advisers Act of 1940. This means they must provide investment advice that is suitable for the client based on goals, risk tolerance, and financial circumstances. RIAs must manage portfolios and securities recommendations in their clients’ best interests.
Broker-Dealers
Traditionally, broker-dealers have been held to a lower “suitability” standard when making investment recommendations. This means the investment only needs to be suitable based on the client’s profile, not necessarily ideal. Brokers can recommend products that pay them commissions as long as they are generally aligned with the client’s needs.
However, with the new DOL fiduciary rule, any financial professionals providing retirement investment advice to plans, plan participants, and IRAs must now act under a fiduciary standard – putting the client’s best interest before their own compensation.
Dual Registrants
For firms like Cambridge Investment Research that are dually registered as brokers and RIAs, the fiduciary duty depends on the type of account or service.
- RIA Accounts: CIR advisors must act as fiduciaries for fee-based advisory accounts
- Brokerage Accounts: Suitability standard applies for commission-based brokerage accounts
- Retirement Accounts: Fiduciary standard required under DOL rule
Dual registration enables advisors to switch between hats, but they must be clear about their role and duty on each account.
When do Cambridge advisors act as fiduciaries?
As a dual registrant, Cambridge Investment Research advisors act as fiduciaries in the following situations:
Fee-Based Advisory Accounts
For accounts opened under CIR’s registered investment advisory platform, advisors must act as fiduciaries. These fee-based accounts include:
- Cambridge Asset Allocation Platform (CAAP)
- Cambridge Managed Account Platform (CMAP)
- CIR Premier Wealth Management
- CIR Custom Program
- My Advice Architect Platform
Advisors must provide ongoing advice for a fee based on assets under management. Recommendations must be made in the client’s best interests for these accounts.
Retirement Accounts
Under the Department of Labor’s fiduciary rule, CIR advisors are required to provide advice under a fiduciary standard for ERISA retirement accounts such as:
- 401(k) Plans
- 403(b) Plans
- 457 Plans
- Individual Retirement Accounts (IRAs)
Retirement savers are especially vulnerable to conflicted advice. The DOL rule ensures advisors make recommendations to minimize costs, fees, and risk for retirement investors.
Financial Planning
While not all financial planning requires a fiduciary duty, Cambridge advisors must act in a client’s best interest according to the Certified Financial Planner (CFP) code of ethics when providing planning services that include:
- Investment and insurance advice
- Tax planning
- Estate planning
- Retirement planning
Advisors cannot let their interests influence advice provided as part of a financial plan.
When do Cambridge advisors not have a fiduciary duty?
CIR advisors are not necessarily required to act as fiduciaries in all situations. Examples where they may not owe clients a fiduciary duty include:
Brokerage Accounts
For standard brokerage accounts, CIR advisors must meet a suitability standard for any securities recommendations. This means the investment only needs to be suitable for the client profile, not necessarily best for the client. These accounts allow advisors to earn commissions on products recommended.
Self-Directed Accounts
If a client chooses a self-directed account where they make their own investment decisions without the advisor’s input, the advisor does not owe fiduciary duties. The client assumes full responsibility for the account in this scenario.
Retirement Plan Services
For retirement plans in which CIR advisors consult on designing the plan itself but don’t provide individualized advice to participants, they may not act as fiduciaries. However, any personalized advice for specific participants requires a fiduciary standard.
Insurance
Recommendations for insurance products like annuities and life insurance fall under a suitability standard. However, CIR advisors must still recommend suitable products aligned with the client’s profile and disclose any conflicts of interest.
Do CIR advisors acknowledge their fiduciary status?
Cambridge requires its advisors to disclose in writing when they are acting in a fiduciary capacity on an account. This “Fiduciary Acknowledgment” is signed when opening an advisory account. Key details include:
- Accepting the engagement to act as a fiduciary “under ERISA” or the Internal Revenue Code
- Providing impartial advice in the client’s best interest
- Avoiding conflicts between CIR’s/advisor’s interests and the client’s
This legally binds advisors to serving as fiduciaries. While not required for all accounts, the acknowledgment puts clients on notice of the advisor’s enhanced duties for advisory and retirement accounts.
How does CIR mitigate advisor conflicts of interest?
CIR implements policies and procedures to reduce conflicts of interest that could influence fiduciary advice provided by its advisors. Examples include:
- Clients must provide informed consent for any third-party compensation
- CIR fee structures incentivize advice in the client’s best interest
- Supervision and compliance oversight of advisors
- Training advisors on ethics and fiduciary responsibilities
CIR aims to eliminate the conflicts inherent in a broker-dealer structure for accounts where advisors must serve as fiduciaries. However, conflicts can never be entirely removed given CIR’s dual registration status.
Does CIR allow advisors discretion on fiduciary accounts?
For fee-based advisory accounts where advisors are fiduciaries, CIR typically grants investment discretion to the advisors. This allows advisors flexibility in managing portfolios in their clients’ best interests by:
- Deciding which investments to buy and sell
- Executing trades without pre-approval
- Rebalancing portfolios
- Managing assets on an ongoing basis
Granting discretion enables advisors to actively invest, reinvest, and trade to meet fiduciary responsibilities. However, advisors must still adhere to CIR’s approved products list.
Discretionary authority must be authorized in writing by clients upon account opening. CIR’s discretionary management agreement outlines the terms and scope advisors’ discretionary powers.
Who can I contact for questions about CIR’s fiduciary duty?
If you have questions about the fiduciary responsibilities of Cambridge Investment Research or your CIR advisor, you can contact:
- Your advisor directly to clarify fiduciary status for your specific account(s)
- CIR Corporate Compliance at (800) 777-6080
- CIR Legal Department at (800) 777-6080
- SEC Office of Investor Education and Advocacy at (800) 732-0330
You can also reference your account opening paperwork or CIR’s Form ADV disclosure brochure for additional information.
Conclusion
As a dually registered broker-dealer and RIA, Cambridge Investment Research advisors serve as fiduciaries when:
- Providing fee-based advisory services
- Giving retirement investment advice
- Crafting financial plans (that involve securities or insurance recommendations)
They are not necessarily fiduciaries when recommending brokerage and insurance products that pay commissions. CIR requires fiduciary acknowledgment in writing and implements measures to mitigate advisor conflicts. But clients should always clarify their advisor’s fiduciary status for each account and type of service.