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Not all financial advice is held to the same legal standard. Understanding the difference between fiduciary and suitability standards can help you choose an advisor who truly puts your interests first.
Fiduciary Standard
Under a fiduciary standard, advisors have a legal obligation to act in their clients' best interests at all times. They must put client interests ahead of their own and disclose any potential conflicts of interest.
Suitability Standard
Under a suitability standard, advisors must only recommend products that are "suitable" for a client's situation. A product can be suitable even if better alternatives exist or if it benefits the advisor more.
| Aspect | Fiduciary | Suitability |
|---|---|---|
| Legal Obligation | Must act in client's best interest | Must only recommend suitable products |
| Conflict Disclosure | Required to disclose all conflicts | Limited disclosure requirements |
| Recommendation Quality | Must recommend options in the client's best interest | Can recommend any suitable option |
| Who Uses It | Registered Investment Advisors (RIAs) | Broker-dealers, insurance agents |
| Client Protection | Maximum legal protection | Minimum regulatory compliance |
A fiduciary standard provides stronger protection and should be preferred when possible. Always ask your advisor if they operate under a fiduciary standard and get it in writing.
Ask directly: "Are you a fiduciary?" A true fiduciary will confidently say yes. You can also check if they're a Registered Investment Advisor (RIA) with the SEC or your state.
Yes, unfortunately. Some advisors wear "two hats" - acting as fiduciary when providing advice but switching to suitability when selling products. Ask them to be a fiduciary in ALL interactions.
Not necessarily - many professionals operating under suitability still provide good advice. However, the fiduciary standard offers stronger legal protection for your interests.
Now that you understand the difference, find the right type of advisor for your needs.
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