Fiduciary vs. Suitability: Which is Driving The Investment Advice You Receive?

12/4/2017 - By Christina Doss, AAMS

In the financial services industry there are two primary parties who can offer investment advice- Registered Investment Advisors (RIA) or investment brokers. The investment advice you receive from these parties may be similar, but a key difference exists between RIAs and brokers. The difference lies in the two competing standards each party is bound to uphold.

These two regulatory standards are the Fiduciary Standard and the Suitability Standard.  A licensed Fiduciary, such as an RIA, has a legal obligation to act in the clients’ best interest.  Conversely, brokers and insurance agents (who frequently use pseudonyms such as financial representative or consultant, registered representative, client or wealth advisor) are held to a lesser measure called the Suitability Standard, which simply requires the broker to sell investments they believe are suitable for their clients, not necessarily what is best for the client. 

To add an additional layer of confusion for investors, in a hotly debated ruling by the Department of Labor (DOL), as of June 9, 2017 investment brokers were expected to provide fiduciary level advice and act in the best interest of their client-but only when advising on retirement accounts. Client assets held with brokers outside of retirement accounts will still be regulated under the lesser suitability standard. But, on August 9, 2017 the DOL filed a Notice of Administrative Action extending the final deadline for compliance and implementation of the fiduciary rule to July 1, 2019.

With more than 25 years of experience in the financial services industry including senior leadership roles with two of the nation’s largest financial institutions, Christina Doss is intimately familiar with the two competing standards.

“Production goals and compensation structures inherently create conflicts of interest within the brokerage and banking structure. Some brokers and agents now wear two hats and depending upon which account they are advising on, retirement or non-retirement, they may not be acting in the client’s best interest. And, unfortunately, the rules governing suitability standards leaves extensive room for interpretation for both the broker and their firm.  I advise investors to ask questions and understand how your broker or advisor is compensated on all the products and services they offer to sell you as those investments will ultimately impact your financial well-being.  Be mindful that what is BEST for the broker may have higher costs for the investor which can result in lower returns.” 

As Registered Investment Advisors, Saltmarsh Financial Advisors is governed by the Fiduciary Standard across all client accounts. Similar to the Hippocratic Oath for physicians, this Standard places us under both a legal and moral obligation to put our clients’ best interest and financial well-being ahead of our own. We do not sell products or receive compensation from the mutual funds we recommend. 

To understand if your best interest is a top priority for your financial professional, ask if they are regulated under the Fiduciary or Suitability Standard. 

If you have any questions about your current investments or the investment options available to you, contact me or a member of Saltmarsh Financial Advisors.

About the Author | Christina Doss, AAMS

Christina is the managing director for Saltmarsh Financial Advisors, LLC, an affiliate of Saltmarsh, Cleaveland & Gund. She is responsible for client wealth management and financial planning and has more than 25 years of experience working in the financial services and wealth management industry.

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