Financial Advisors with Suitability Standards vs Fiduciary Standards

After many long years of working, saving and striving for what we hope is total relaxation and freedom, eventually we all reach that point in our lives when it is time to retire.  Regardless of what route you choose on your path to retirement, all lead to one question, who will you trust to help manage your nest egg?

You may choose to go it alone and handle your finances as a lone ranger. Although, it is not recommended, a professional can help prolong and even potentially increase your retirement income when handled properly. “But it’s my money and I don’t want it in the hands of some stranger.” This inference is completely understandable, which is why you must do your homework when choosing a financial advisor. Be wary, of the type of advisor you choose because not all follow the same standards when it comes to handling client accounts. There are two main types of financial professionals you will encounter. Those who are held to a suitability standard and those who are held to a fiduciary standard.

Suitability Standard

Financial professionals held to the suitability standard are commonly known as a broker. They are required to registered with a broker-dealer.  What does that mean? The SEC (U.S. Securities and Exchange Commission) defines a broker as any person engaged in the business of effecting transactions for the account of others and a dealer as any person engaged in the business of buying and selling securities for his own account.* With that in mind, someone held to a suitability standard is not required to work in the best interest of their clients, as they are only required to fulfill suitability obligations.

Fiduciary Standard

As part of the Investment Advisors Act of 1940, a financial professional who is registered  as an Investment Adviser Representative, commonly known as a “financial advisor”, is held to a higher standard than someone held to the suitability standard. These advisors must work with the best interest of the client above their own, at all times. Regardless if specific financial products would benefit the advisor, if it does not benefit or work toward the best interest of the client, the advisor cannot legally move forward with that product. All financial products, portfolios and client account changes must be made with the best interest of the client while also fulfilling suitability obligations. This is the standard that is used with each individual client at Global Wealth Management.

Which Route to GO?

As you approach retirement and your interest for finding a financial professional grows, there is much to consider before making a decision. Whatever you decide, it is important to know the difference and do your research. Speak with professionals and ask questions to ensure you’re choosing the right professional for your individual situation. Explore your options and look for a professional who will have your best interest in mind and take the time to develop a relationship with you. For more information on selecting the right professional for you, consider these tips before investing your assets.

Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), member FINRA/SIPC. Advisory services offered only by duly registered individuals through Global Wealth Management Investment Advisory (GWM), a Registered Investment Advisor. MAS and GWM are not affiliated entities. Investing involves risk, including the potential loss of principal.

Office of Interpretation and Guidance – Securities and Exchange Commission