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Believe it or not, not all advisors must adhere to the fiduciary standard when working with their clients. Many advisors are held to a suitability standard that requires investments to be considered ‘suitable’ rather than the fiduciary standard that requires the advisor to put their client’s best interest ahead of their own. To make things even more confusing, some advisors have a dual registration, where they wear two hats and can toggle between both standards. 

An advisor can represent a Broker-dealer as a ‘registered representative’, making suggestions considered suitable to clients, or represent a Registered Investment Advisor as an ‘investment advisor representative’, providing fiduciary advice to clients. Although an advisor under the suitability standard could have undivided loyalty to the client and act in their best interest, they do not have to put their client’s interest before their own. That’s not to say there are not excellent advisors that operate under the best interest standard, who put their client’s interests first, and apply the fiduciary standard in their daily practice. Furthermore, I’ve also encountered advisors legally bound to the fiduciary standard who provide advice that may not necessarily put their client’s interest first. 

Working with an advisor held to the fiduciary standard makes it easier to understand the advisor’s intentions. If you’re unsure, a good question to ask is whether the advisor is held solely to the fiduciary standard of care. 

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Article written by Peter Kim, CFP® on June 2, 2022