By Gregg Gonzalez, CFP ®
When seeking financial advice, it’s easy to assume that all advisors are held to the same standard of care, but that’s not the case. The fiduciary standard and the suitability standard are two distinct approaches that can dramatically impact the quality and type of advice you receive.
Understanding the difference between these standards is essential to protecting your money and your future.
What Is the Fiduciary Standard?
The fiduciary standard requires financial professionals to always act solely in the best interest of the client. This legal and ethical obligation means that advisors must:
- Prioritize your interests above their own
- Avoid or clearly disclose conflicts of interest
- Recommend strategies based on your unique goals, risk tolerance, and financial needs
- Provide ongoing, comprehensive guidance – not just a one-time recommendation
This standard is often followed by Registered Investment Advisors (RIAs) and professionals with credentials like CFP® (Certified Financial Planner).
What Is the Suitability Standard?
The suitability standard, on the other hand, only requires that a recommendation be suitable for the client. This loose guideline means:
- The investment or product needs to fit the client’s general profile
- Advisors can consider their own compensation or firm incentives when making a recommendation
- There’s no ongoing duty to monitor or update advice after the transaction
This standard is typically applied to broker-dealers and insurance agents, who may earn commissions on products they recommend.
A Simple Example:
Let’s say you’re planning for retirement. You have two options:
- A low-cost index fund with a long-term track record of success
- A high-commission annuity with complex terms
Both might be suitable for you, but only the index fund may truly be in your best interest. An advisor held to the fiduciary standard would likely recommend the index fund, while one operating under the suitability standard could legally recommend the annuity—especially if it means a bigger commission.
Why the Difference Matters
The gap between fiduciary and suitability standards can have real financial consequences, especially over time. Key differences include:
| Feature | Fiduciary Standard | Suitability Standard |
| Obligation to act in your best interest | ✔️ Yes | ❌ No |
| Ongoing duty to monitor advice | ✔️ Yes | ❌ No (often transactional) |
| Must disclose conflicts | ✔️ Yes (required) | ⚠️ Sometimes (not always required) |
| Product recommendations | Based on your best interest | Based on what’s “suitable” (may benefit advisor) |
| Common compensation model | Fee-based or fee-only | Commission-based |
How to Protect Yourself as a Client
To ensure you’re receiving comprehensive financial guidance:
- Ask directly: “Are you a fiduciary at all times when working with me?”
- Understand compensation: Ask how your advisor gets paid and if they earn commissions.
- Look for fiduciary-friendly terms: Such as CFP®, RIA, or fee-only advisors.
Bottom Line
When it comes to your financial future, “suitable” isn’t always sufficient. Working with a fiduciary ensures that your advisor is legally and ethically bound to put your needs first—no exceptions, no excuses.
Because your money deserves more than “good enough.” It deserves what’s best.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
