According to a survey in 2017 by Business Wire, 93 percent of Americans think financial advisors who provide retirement advice should be legally required to put their clients’ best interest first. However, more than half of respondents (53 percent) mistakenly believe that all financial advisors are already legally required to put the best interests of their clients first. Lastly, 66% of people can’t tell the difference between a financial planner who is a fiduciary and one who’s not.

There are 2 types of “Standard of Care” as it pertains to investment advisors/advisers who manage assets for their clients: Fiduciary Standard and Suitability Standard. There is a distinctive difference between as you read below.

A fiduciary duty or fiduciary standard is the highest quality of care and those acting in this capacity are legally required to put their clients’ interests first—before their own financial interests or their firm’s sales goals. In general, financial professionals bound by fiduciary duty tend to be more transparent. Advisors who follow fiduciary requirements must be upfront about all compensation received and must be fee-only or fee-based, not commission-based. This allows their compensation to be completely independent of all recommendations, trade, research etc. as it is all included in the overall fee. Also, fiduciaries exercise discretionary authority, allowing them to make changes to the investments on your behalf.

The most common difference between a fiduciary and an advisor acting under a suitability standard is the decision-making process. Before making a recommendation and entering a fee-based contract with the client, fiduciaries undergo a prudent process designed to determine their client's best interest. This makes it easier to ensure you understand the decisions that are being made regarding your assets and financial future. As a potential client, you should be concerned whether an advisor is recommending a certain product because it helps their bottom line more than it helps yours.

Advisors acting under the suitability standard may, but are not required, to have the same depth of discussion. In fact, there are some registered reps that are given additional compensation for selling certain products offered by their employer.

The suitability standard does not require advisors to put their clients' best interests before their own, nor must they avoid conflicts of interest. This suitability standard is set by the Financial Industry Regulatory Authority (FINRA). For advice to be considered merely "suitable," the financial professional must only have an adequate reason to believe a recommendation fits the client's financial situation, needs and other investments. As a result, their duty to a client's investments and financial situation ends once the trade is placed.

Some registered representatives or advisors who earn all or part of their compensation via commission and are often guided by their employer on how to conduct their business. Quite often these advisors look solely to their company for investment guidance rather than relying on independent or third-party research to do what is best for the client.