While the terms “fiduciary standard” and “suitability standard” may seem like irrelevant semantics, the difference between advisors who offer a fiduciary standard vs. advisors who offer a suitability standard can be thousands of dollars of unnecessary product fees, commissions, and other opportunity costs resulting from conflicts of interest.
In case you aren’t familiar with these terms, let’s begin with a summary of what each term means for the financial advice that you receive and your overall financial well-being:
- Fiduciary Standard: In the financial advice industry, the fiduciary standard is considered the highest level of care a financial advisor or financial planner can offer you as a client because:
- A financial advisor is legally required to act in your best interest and must put your financial interests above his or her own. This is comparable to the level of care you would expect from your doctor, lawyer, or CPA. Many investors wrongly believe that their advisor is a fiduciary, but in fact only fee-only (not fee-based) advisors are exclusively fiduciaries.
- If there are any conflicts of interest, they must be disclosed in writing, along with any fees or compensation.
- The Suitability Standard: This is the most common standard for financial advisors in America today. Operating under the suitability standard means that:
- A financial advisor can provide advice and recommend financial products that are considered “suitable” for you based on a basic understanding of your financial situation (typically a simplistic “risk tolerance survey”).
- Despite the fact that the financial advisor may have access to investment options that are lower cost, better diversified, or pay a smaller commission to the advisor, but the advisor could choose to recommend the investment option that pays him or her a higher commission so long as the investment product was considered “suitable” for your financial situation.
While no compensation system is perfect and free from all conflicts of interest and certainly there are some great fee-based/commission-based some advisors doing good work for their clients, we strongly believe that the fee-only, fiduciary compensation method best serves investors and that all conflicts of interest should be disclosed.
Here at Longview Advisors, we are proud and fortunate to be members of the National Association of Personal Financial Advisors,the nation’s leading professional organization for fee-only, fiduciary financial advisors and we annually sign their Fiduciary Oath:
Following the NAPFA Fiduciary Oath means Longview Advisors shall:
- Always act in good faith and with candor.
- Be proactive in disclosing any conflicts of interest that may impact a client.
- Not accept any referral fees or compensation contingent upon the purchase or sale of a financial product
Interested in fiduciary financial advice? Contact us today.