Fiduciary vs. Suitability Standards: A Personal Reflection

12/28/2023 - By Mark Hemby, CFA

I’ve been in the financial industry for nearly 20 years and have worked for many different firms. In those roles, I had different types of clients. When I came to Saltmarsh over three years ago, most of my prior experience was servicing large institutional clients. Now that I’ve been here a few years, I can reflect on my career and my various experiences. The most prominent difference between my role at Saltmarsh and roles at other firms is my current fiduciary responsibility versus my previous suitability duty.

First, some background. Saltmarsh Financial Advisors is a Registered Investment Advisor (RIA) under the Securities and Exchange Commission (SEC). Our fiduciary duty to clients is an important distinction as an RIA. All RIAs are held to a fiduciary standard, which is the highest standard of care recognized by the law. This means that we are required to act in the best interests of our clients at all times and to prioritize their clients' interests above our own. The fiduciary duty encompasses a duty of loyalty and a duty of care.

There are some important implications to this duty. In addition to requiring RIAs to provide advice in the best interest of the client, RIAs must also disclose any potential conflicts of interest and avoid transactions where personal interests could conflict with the interests of the client.

During different times during my career, I’ve worked for broker-dealers. I believe there is nothing wrong with working for a broker-dealer or getting advice from broker-dealers. However, it is important to understand the difference in their legal duty. Broker-dealers are held to a suitability standard, which means that they must make recommendations that are suitable for their clients based on the client's financial objectives, risk tolerance, and other relevant factors. Unlike the fiduciary duty, the suitability standard does not necessarily require the broker-dealer to act in the client's best interest.

While the recommendations must be suitable, they may not be the best option for the client. The suitability standard primarily focuses on the appropriateness of the investment recommendation given the client's circumstances.

It's worth noting that the regulatory landscape has been evolving, and there have been efforts to raise the standard of care for all financial professionals. The SEC introduced Regulation Best Interest (Reg BI) to enhance the standards for broker-dealers, requiring them to act in the best interest of the client when making recommendations.

Despite these changes, there's still a distinction between the fiduciary duty of RIAs and the suitability standard of broker-dealers, and clients should be aware of the standard to which their financial professional is held.

The most important factor in choosing any advisor, whether they work for an RIA or a BD, is trust.  Both types of advisors can and do serve their clients well.  But you must always evaluate the individuals you work with and be convinced that they are trustworthy.

At Saltmarsh Financial Advisors we hold our trust with clients in the highest regard, and we strive to go above any legal standard.  If you would like more information about how Saltmarsh Financial Advisors differs from other traditional advisors, please contact us and we would be happy to meet with you.


About The Author | Mark Hemby, CFA®

Mark is a senior financial advisor for Saltmarsh Financial Advisors, LLC, an affiliate of Saltmarsh, Cleaveland & Gund. He holds a Chartered Financial Analyst (CFA®) designation and as part of our investment advisory group, he works with clients to develop and implement investment strategies to achieve financial freedom while also ensuring their goals and objectives are aligned. Mark has over 15 years of experience in investment banking working with individuals and organizations to manage their portfolios and coordinate investment activities. In addition to his experience with fixed income trading and sales, Mark owned and operated his own business in Alabama.


Related Posts