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Fiduciary Responsibility vs. Suitability

Posted by Michael Kane on Jun 19, 2015 10:00:00 AM
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As you take the time to determine who to trust with your financial future, it’s important to know how to differentiate between the professionals who are trying to earn your business. 

What is a Fiduciary?

Here at RAA, we are a Registered Investment Advisor and a fiduciary. So what does that mean to you?  

As a Registered Investment Advisor, we are held to fiduciary standards and are required to act in your best interest. In fact, fiduciary duty is the strictest duty of care recognized by the US legal system.

Stockbrokers & Broker-Dealers

On the other hand, you have stockbrokers, also known as broker-dealers, who by definition, are in the business of effecting transactions for the account of others. Generally, stockbrokers are held to a lower standard, known as the suitability doctrine, which only requires that the client’s financial situation be known well enough to recommend investments suitable for that client. While a fiduciary has the legal obligation to put your interest ahead of theirs, a stockbroker does not.

So How Can You Tell the Difference?

There are several ways to tell the difference.       

  • Ask if they will be serving as your fiduciary.
  • Look at the company website for indications of broker-dealer disclaimers.
  • Ask to see the advisor’s Form ADV. All Registered Investment Advisors are required to file this with the Securities and Exchange Commission annually (for companies managing over $100 million). It provides detailed information about the services they provide, fees imposed, whether the advisor acts as a broker-dealer and transacts securities, etc. You should be immediately cautious if they do not freely offer the Form ADV upon request.

HOW DOES IT AFFECT YOU?

Finally, you may ask how non-fiduciary advice might impact your bottom line. Did you know, the President’s Council of Economic Advisers estimates that non-fiduciary advice costs Americans 1 percentage point of their return annually, which amounts to $117 billion each year?

When looking for a financial advisor, be sure to take the time to research the firm and their fiduciary obligations to you. To learn more about how Retirement Advisors of America can assist you and your family, please contact us at 800-321-9123.

 

NOT SURE WHERE TO START? 

Request your FREE Final Approach retirement planning guide.

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This guide is designed to help you understand the decisions you will need to make as you approach retirement and the factors that go into a comprehensive retirement plan. It includes:

  • A checklist for transitioning into retirement
  • Common investor pitfalls
  • An outline of your retirement benefits
  • A retirement timeline to help you know what to expect
  • Key topics to consider in your estate plan
  • The importance of survivor assistance


Request the Final Approach to find out how prepared you are for retirement.

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Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by RAA following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, RAA accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security. 

Topics: Financial Planning