Jul 13, 2017

What is the Fiduciary Standard?

By United Capital

In the investment field, there are mainly two types of institutions that offer financial services. One are the investment advisors and the other are the broker-dealers. Both parties are held to different standards while working with clients seeking financial management. Investment advisors are bound by a fiduciary standard when providing investment advice, while broker-dealers are subject to a suitability standard when selling commissionable products.

Fiduciary Standard vs. Suitability Standard?

Investment advisor representatives have a duty of loyalty and care, and are required to put their clients’ interests above their own. The investment advisor representative must do his or her best to make sure investment advice is provided using accurate and complete information. Avoiding conflicts of interest is pertinent when acting as a fiduciary, and it means that an advisor must disclose all potential conflict of interests to clients.

On the flipside, brokers who sell commissionable products through broker-dealers may do so under the suitability standard, which means that the sale is permissible if it is believed to be consistent with the best interests of the underlying customer. Instead of having to place his or her interests below that of the client, the suitability standard only details that the broker-dealer has a reasonable belief that any recommended products are suitable for clients, in terms of their financial needs, objectives and unique circumstances.

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A key distinction in terms of loyalty, when selling products, the broker’s duty is to the broker-dealer he or she works for, not necessarily the client served. The suitability standard does not eliminate conflict of interests between a broker-dealer and underlying client.

The most obvious conflict is with fees; as long as the investment product is suitable for the client, it can be sold to the client. This can incentivize brokers to sell their own products ahead of competing products that may be at a lower cost. It is important to note that it is possible for an investment advisor representative to also be a broker of a broker-dealer at the same time. A representative who is both an advisor and a broker will provide advice under the fiduciary standard, while selling products through their broker-dealer under the suitability standard. For that reason, it is important to ask your financial advisor all methods of their compensation.

UNITED CAPITAL prides itself in operating under the Fiduciary Standard.

United Capital Financial Advisers, LLC (“United Capital”) provides financial life management and makes recommendations based on the specific needs and circumstances of each client. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained herein is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. Investment adviser representatives of United Capital may also be registered representatives of a Girard Securities (“Girard”), a registered broker-dealer, member FINRA/SIPC. United Capital and Girard are separate and unrelated companies.

United Capital Financial Advisers, LLC (“United Capital”) is an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization. United Capital does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances.

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