As Seen in Investopedia: Suitability vs. Fiduciary Standards: What's the Difference?
As seen in Investopedia on September 20, 2021
According to Investopedia, clients may choose to work with an investment adviser representative (“IAR”) or a registered representative (“RR”) depending on what their needs are. Both are professionals who provide investment advice to individual and institutional clients, but IARs are governed by a different standard than RRs are. With an obligation to place client interests above their own, investment advisers must adhere to a fiduciary standard overseen by the Securities and Exchange Commission (SEC) or state securities regulators. Investment advisers are required to avoid, mitigate and/or disclose conflicts of interest and apply a fiduciary standard when managing a client’s portfolio to ensure that the client’s best interests are placed ahead of the IAR and the Firm’s own interests.
Alternatively, RRs serve as an agent for broker-dealers and are held to a suitability standard established by the Financial Industry Regulatory Authority (FINRA). This standard only requires brokers to believe that transactions are “suitable” for the client’s immediate needs and to ensure transaction costs are reasonable. The suitability standard often times causes a conflict between brokers and their clients when a transaction in a client’s account may benefit the broker at the client’s expense. Understanding the distinction between suitability and fiduciary standards enables clients to determine whether an IAR or RR will best serve their needs.
Read the Full Article on Investopedia Here!
Source: Investopedia.com
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