For financial service professionals, there are certain guidelines and standards that must be upheld within the client/advisor relationship. For the most part, advisors are divided between two camps—the suitability standard and the fiduciary standard.
The Suitability Standard
The suitability standard simply states that the suggested investments be suitable for the individual’s time horizon, experience, and objectives. Nowhere does it state that the advisor must provide what is best for the client—only what is suitable. As you can imagine, this invites conflicts of interest especially when compensation comes into the picture.
For example, an advisor might have Product A and Product B. Both of these products are suitable to a client but Product B pays the advisor a higher commission. Which one do you think the advisor will recommend to the client?
The Fiduciary Standard
On the other hand, the fiduciary standard mandates that the advisor must always put the client’s interest ahead of their own. In other words, the advisor must not only do what is suitable for the client—they must do what is BEST for the client. Because of this, the fiduciary standard helps to reduce potential conflicts of interest in the client/advisor relationship.
If you are considering working with a financial professional make sure to ask if they are held to a fiduciary standard or not. As a Registered Investment Advisor (RIA), Sigdestad Financial is bound to the fiduciary standard. We always put our clients first and only do what is in their best interest.