Towercrest Capital Management        

 

FIDUCIARY vs SUITABILITY - WHY SHOULD YOU CARE?

Doesn’t sound like much, but these two words, fiduciary and suitability, are critical to determining the type of care and investment advice you receive from your financial advisor.

Unfortunately, only a small proportion of “financial advisors” are held to a fiduciary standard of care. Most financial advisors are considered broker-dealers by the Securities and Exchange Commission (SEC) and are held to a lower standard of care called suitability, explained below.

Currently, Registered Investment Advisors are required to act in a fiduciary capacity. The law requires that the advisor act solely in the best interest of the client, even if that interest is in conflict with the advisor’s financial interest.

Registered Investment Advisors held to the fiduciary standard must also disclose any conflict, or potential conflict, to the client prior to and throughout the engagement.

Additionally, the advisor must adopt a Code of Ethics and fully disclose how they are compensated.

Brokers or “financial advisors” working for a broker dealer firm or an insurance company are held to the suitability standard. The suitability standard, by contrast, requires brokers to recommend investment products that are “suitable at the time of purchase,” based on the information provided by the client. There is no requirement that the recommendation must be in the client’s best interest. Also, conflicts of interest need not be disclosed.

It’s important to fully understand your relationship with the person handling your investments. We suggest that all investors ask their advisors if their advice is subject to the fiduciary or suitability standard.

Our firm is, and always has been, built on what is best for the client. Our advocacy of – and adherence to – the fiduciary standard of care is confirmation of that unwavering commitment.