Fiduciary vs. Suitability and Why it Matters

In 2016, the DOL released the Fiduciary Rule, which for the first time brought to light two different types of financial advisors; Fiduciaries and Non-Fiduciaries. Before this, investors had very little knowledge of the differences. Studies have shown that nearly 50% of Americans believe ALL financial advisors are required to act in the best interest of their clients. However, this is sadly not true.

The flip side of the Fiduciary Standard is the Suitability Standard. If the advisor adheres to the Suitability Standard, they only have to recommend products or solutions that could be deemed suitable for you, not necessarily the best solution.

My dad is big – 6’4” to be exact. If he went to a car dealership and they recommended a mini cooper, it might be suitable to get him from point A to B but we would laugh at the suggestion that it’s the best car for him. We can laugh about this because it’s quite obvious – with investments it’s murkier and more costly.

I take pride in being a Fiduciary because it means I’m legally bound to act in utmost good faith, in a manner I believe to be in my clients best interest. This often means recommending solutions that results in less or no compensation because it is in their best interest to do so. It’s sad that it required a law to bring this to light. It’s a no-brainer for me - I was raised to treat others how I would want to be treated.

Thank you for reading,

Alex

This blog post is not advice. Please read disclaimers.