Is Your Financial Advisor Legally Required to Act Only for Your Benefit?

October 27, 2014

Financial AdvisorWhen you seek guidance from a professional financial advisor, do you know to which standard your advisor must comply?  Is it the lower “suitability” standard or the higher “fiduciary” standard?

With the fiduciary standard, the registered investment adviser (RIA) is legally required to act for the sole benefit of and in the best interest of the investor client.  The fiduciary laws were written to protect client investors against wrongdoing by a RIA and are administered by the Securities and Exchange Commission (SEC), an independent agency.

Suitability just requires that the investor client is “suitable” for the product being sold.   The advisor, often a broker, isn’t mandated to act in the client’s best interest.  Brokers themselves wrote the suitability rules and they are self-administered by the Financial Industry Regulatory Authority, Inc. (FINRA), a private corporation.

If you don’t know whether your financial advisor is legally mandated to act only for your benefit and not his or her own, then it is in your best interest to find out.

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