This holds true in the world of financial management as well. While we would like to believe everyone wants only what’s best for us, and in our best interest, surprisingly, this is not the case most of the time. In fact, less than 10% of the financial advisors in the United States are in the position to truthfully say they are looking out for your best interest, 100% of the time. These advisors are called “RIAs” (Registered Investment Advisor) and fall under the rule of the Fiduciary Standard.  

RIAs are bound to a fiduciary standard regulated by the Securities and Exchange Commission. This standard is outlined in the Investment Advisers Act of 1940, with the SEC providing comprehensive interpretation of the fiduciary duty in June 2019.  

The act is very specific and stipulates that advisers must place their interests below that of their clients. This is a duty of loyalty and care. For example, RIAs cannot buy securities for their accounts prior to buying for clients and are prohibited from making trades that might result in commissions for themselves or their firm.

RIAs must avoid any conflict of interest and must disclose any potential conflicts. They are also required to place trades under a “best execution” standard. This means they must strive to make the trades with best combination of low cost and efficient execution. The SEC also determines how advisers can charge their clients.

So, if less than 10% are looking out for my BEST interest, what obligation do the remaining 90% have?

Those who do not fall under the stringent guidelines of a Fiduciary, have a suitability obligation. FINRA Rule 2111 governs the Suitability Standard. This Rule requires that a firm or associated person have a reasonable basis to believe a recommended transaction or investment strategy is suitable for the client, and this belief is based on information obtained through reasonable diligence of the firm or associated person to determine the customer’s investment profile.  

When was the last time you wanted something that was “suitable” and not “best” for you