WHY WORK WITH A FIDUCIARY?
Fiduciary vs. Suitability: Which is Driving The Investment Advice You Receive? OR, Are You Truly Getting The Best Investment Guidance?
The financial services industry can be divided into two main parties who are capable of offering investment advice:
Registered Investment Advisors (RIA) or Investment Brokers.
These two parties may offer similar investment advice, but there is one big difference between the two of them. The difference can be defined as the competing standard that each of these parties is required to uphold. More commonly, these standards are referred to as a Fiduciary Standard and a Suitability Standard.
Fiduciary Standard
A Registered Investment Advisor (RIA) is also referred to as a “licensed Fiduciary”. They are obligated to act in their clients’ best interest when it comes to investment advice. Fiduciaries need to ensure that their recommendations will benefit their client in all ways, as they are bound by their fiduciary duty to do so.
Suitability Standard
Investment Brokers can also be referred to by names like insurance agents, financial representatives, financial consultants, registered representative, and wealth advisor. These individuals are held to a lesser standard than licensed Fiduciaries. Where a Fiduciary has to act in their client’s best interest, a broker is only required to suggest investments that they think are the best fit for their clients, even if it isn’t.
With more than 20 years of experience in the financial services industry, the founder of US Annuity Institute is intimately familiar with the two competing standards. The need to meet production goals and hit compensation structures may unfortunately contribute to conflicts of interest within brokerage, life insurance, and banking institutions. As a result some of these individuals may put their needs first and may choose not to act in their client’s best interest.
Unfortunately, the rules governing suitability standards leaves ample room for interpretation for both the stockbroker, their firm, or life insurance licensed only agents. Here at US Annuity Institute, we encourage investors to ask questions and understand how their broker or life insurance advisor is compensated on all the products and services they offer to sell, as those investments will ultimately impact the investor’s financial well-being.
The damage of bad advice to an investor can be devastating and may result in lower returns due to higher costs or hidden fees. To understand if your best interest is a top priority for your financial professional, ask if they are regulated under the Fiduciary or Suitability Standard.