In Selecting a Financial Advisor, Do You Want What is Best or Just Suitable?

In selecting and working with a financial advisor, there are many factors you may consider. One of the key items you should consider is how your advisor makes his or her decisions. What motivates those decisions?

Our firm is very clear on this: All of our advice and recommendations are based strictly on what is in the client’s best interest. Period.

We do not base our advice on anything else. We do not accept commissions. We do not charge sales fees. We do not get compensated from investment firms or mutual funds that we recommend. We recommend only what is in the best interest of each client.

It is important for you to understand this concept, because not all firms that provide financial advice adhere to the same high standard that we do.

It is important because many large financial firms, such as the major brokerage firms that advertise on TV and in major newspapers, are not held to this very high standard of practice.

Our firm is subject to a fiduciary standard, which means that our decisions must be made in your best interest. Your interests must always be ahead of our financial interest. And that’s how you would want your advice and recommendations to be made, right? And that is how we want our decisions to be made.

With this high fiduciary standard, there are no conflicts of interests in our recommendations. We do what is best for the client.

Brokers at the major brokerage firms do not have to meet this high fiduciary standard. They have a lower standard, called a suitability standard. This lower bar does not put the client’s interest ahead of the broker. The broker’s loyalty is first to the brokerage firm. The client’s interest can legally come later.

An example of this inherent conflict, from the website

The suitability standard can end up causing conflicts between a broker-dealer and underlying client. The most obvious conflict has to do with fees. Under a fiduciary standard, an investment advisor would be strictly prohibited from buying a mutual fund or other investment, because it would garner him or her a higher fee or commission. Under the suitability requirement, this isn’t necessarily the case, because as long as the investment is suitable for the client, it can be purchased for the client. This can also incentivize brokers to sell their own products ahead of competing products that may be at a lower cost.

This issue of financial advisors and brokerage “standards” is becoming a political issue in Washington, as various regulatory matters are being addressed. We want you to know which side of the issue we are on, which is the highest standard of care for our clients.


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