Not all financial advisors are the same.

Do you know what a fiduciary is? Fiduciary duty is a legal responsibility to put the interests of another party before your own. If someone has a fiduciary duty to you, he or she must act solely in your financial interests. A fiduciary cannot, for example, recommend a strategy that doesn't benefit you but instead provides a kickback. You can think of it like the doctor-patient relationship, where one party has a duty to put the other party's interests first. Fiduciary financial advisors hold a relationship of trust with their clients and abide by the fiduciary standard.

The Bottom Line:

Different types of financial advisors can be held to different ethical standards. A fiduciary has different obligations than someone bound only by the suitability rule. Fiduciaries must always act in their clients' best interest. Ultimately, when it comes to choosing someone to manage your money, you should find someone you can trust.

SUITABILITY RULE

  • They are not required to give the best advice
  • Recommendations must be suitable for the client
  • Less strict requirements regarding disclosure of conflicts of interest
  • May be loyal to the broker-dealer, not necessarily the client

FIDUCIARY STANDARDS

  • Recommendations must be in the clients best interest
  • Required to disclose conflicts of interest
  • Must be loyal to the client and act in good faith
  • Act with prudence, diligence and good judgment of a professional