Why the Suitability Standard Isn't Suited for You
Working with a fee-only investment adviser who adheres to the fiduciary standard can help ensure you get the best financial advice to suit your needs.
You need to be sure that any financial advice you get is given with your best interest in mind. The best way to do so is to hire a fee-only adviser who operates in a fiduciary capacity.
The Department of Labor has recently stepped in to mandate that all advisers to retirement assets hold themselves to the fiduciary standard. Simply put, the fiduciary standard states that advisers must hold the interest of their clients above their own. This is in contrast to the lesser and more commonly adhered to "suitability" standard, which states that an adviser must hold the interest of their clients at least as high as their own.
That's a subtle change in language, but an enormous difference in meaning.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For context on how this situation unfolded, think back to the early days of the stock market. If companies wanted to raise money to hire more employees or build more factories, they hired an investment bank to issue stock in their company for consumption by the public market (which are called initial public offerings, or IPOs). In order to move those issues, the banks paid brokers a commission to sell securities from their inventory. The brokers were incentivized to generate profits for the bank by way of selling as much product for as high a commission to as many customers as possible. There's nothing wrong with that, and it's a commonly accepted practice across various industries for goods and services. "Caveat emptor" applies here.
However, as capital markets matured and Americans became more dependent on financial assets to support their livelihoods, many began seeking advice on the best investments for their portfolios. Common knowledge held that those who knew the most about investments were the ones selling them, so the advice of brokers was sought on how to best allocate savings.
When recommending investments, the broker has many options to consider, but let's simplify it to Investment A or B.
Investment A is pretty good for the client, but doesn't pay much of a commission to the broker.
Investment B is also pretty good for the client, and pays a nice commission to the broker.
Because both investments are pretty good and therefore suitable for the client, there's some likelihood that Investment B will be recommended because it pays more for the broker.
Are Investment A and Investment B equally good for the client? That's difficult to know in this example, but since suitability is the standard to which most advisers (those registered with a broker-dealer) are held, the broker-adviser has done a satisfactory job.
The new fiduciary rule aims to address this problem, but only does so for retirement accounts. Non-retirement accounts could still fall under that same suitability standard. And this could be the same adviser working with the same client; it just so happens they have one retirement account and one non-retirement account.
If you're confused by what you just read, you're not alone.
That's not to say that commissions shouldn't be part of the economic model by which brokers are compensated. There is absolutely a time and place for that, but doing so under the veil of advice lacks transparency and consistency.
Fortunately, this conflict has given rise to a better advisory model that puts the client at the center of the relationship by removing the commission equation altogether—that is the business of fee-only investment advisers. Their advice is the same on retirement accounts as it is on non-retirement accounts. It's 100% driven by what's deemed best for the client, and the client pays directly for that advice while the adviser implements and manages the portfolio of investments on their behalf.
Since its inception as Disch & Associates in 2008, Great Point Wealth Advisors has always advised clients in a fiduciary capacity. It's a founding principle and our way of reciprocating the trust given to us by our clients.
The DOL has made strides in this effort, but the real strides must come from you, the investors. You need to seek out fee-only investment advisers for help managing your portfolios and the myriad of other financial and estate related subject matter that requires careful consideration. It is critical to securing the future you deserve.
Peter V. Disch, Jr., CFP® is the founder and managing member of Great Point Wealth Advisors, an SEC Registered Investment Adviser in Boston.
-
Americans, Even With Higher Incomes, Are Feeling the SqueezeA 50-year mortgage probably isn’t the answer, but there are other ways to alleviate the continuing sting of high prices
-
Hiding the Truth From Your Financial Adviser Can Cost YouHiding assets or debt from a financial adviser damages the relationship as well as your finances. If you're not being fully transparent, it's time to ask why.
-
How to Manage a Disagreement With Your Financial AdviserKnowing how to deal with a disagreement can improve both your finances and your relationship with your planner.
-
Are You Honest With Your Financial Adviser? Why Hiding the Truth Can Cost You
Hiding assets or debt from a financial adviser damages the relationship as well as your finances. If you're not being fully transparent, it's time to ask why.
-
5 Actions to Set Up Your Business With Your Exit in Mind, From a Wealth AdviserWhen you're starting a business, it may seem counterintuitive to begin with exit planning. But preparing will put you on a more secure footing in the long run.
-
Missed Your RMD? 4 Ways to Avoid Doing That Again (and Skip the IRS Penalties), From a Financial PlannerIf you miss your RMDs, you could face a hefty fine. Here are four ways to stay on top of your payments — and on the right side of the IRS.
-
What Really Happens in the First 30 Days After Someone Dies (and Where Families Get Stuck)The administrative requirements following a death move quickly. This is how to ensure your loved ones won't be plunged into chaos during a time of distress.
-
AI-Powered Investing in 2026: How Algorithms Will Shape Your PortfolioAI is becoming a standard investing tool, as it helps cut through the noise, personalize portfolios and manage risk. That said, human oversight remains essential. Here's how it all works.
-
A Newly Retired Couple With a Portfolio Full of Winners Faced a $50,000 Tax Bill: This Is the Strategy That Helped Save ThemLarge unrealized capital gains can create a serious tax headache for retirees with a successful portfolio. A tax-aware long-short strategy can help.
-
5 Retirement Myths to Leave Behind (and How to Start Planning for the Reality)Separating facts from fiction is an important first step toward building a retirement plan that's grounded in reality and not based on incorrect assumptions.
-
I'm a Financial Adviser: Silence Is Golden, But It Hurts Your Heirs More Than You ThinkTalking to heirs about transferring wealth can be overwhelming, but avoiding it now can lead to conflict later. Here's how to start sharing your plans.
