Broker Check

Fiduciary ... Suitability ... or both (Hybrid)

Introduction from Bruce

This topic is confusing and fraught with peril ... and "the rules are changing in the middle of the game!"  The Fiduciary Standard was mentioned in the Investment Advisors Act of 1940, so the Fiduciary Standard goes back a long way.  I can't defend or think of any good reason why there should have ever been a lower standard promulgated on the public, but there is still today a lower standard called "suitability."  What is even more confusing is that these two different standards might be applied to the same individual, depending on what she / he is doing. ("Hybrid")

I have already said elsewhere -- ask the person you might be dealing with if they are following the Fiduciary Standard.  It's a "yes" or "no" question.  I don't think there is anything wrong with a "no" answer.  It can be honest ... ethical ... and legal.  The problem comes if you get a looooooooong answer ... possibly indicating that the person answering the question is either unclear of his / her status ... or doesn't want you to know.  Yikes!  That I would find unappealing.

Please also understand that within the current system (which could change soon) the individual licensed person is not always in a position to make his / her own decision.  She or he is simply describing their circumstance within the "ocean" or "universe" they are swimming in. 

Since I couldn't possibly have invented this system on my own, the rest of this page is all quoted from Investopedia.

From Investopedia


"In the investment field, there are two primary parties who are able to offer investment advice to individuals, as well as institutional clients such as pension funds, non-profit organizations and corporations. These parties are investment advisors and investment brokers who work for broker-dealers. Many clients may consider the investment advice they receive from each party as similar, but there is a key difference that may not be completely understood by the investing public. The difference pertains to two competing standards that advisors and brokers must adhere to, and the distinction has important implications for individuals who hire outside financial assistance."  Source: Investopedia

Fiduciary Standard
"Investment advisors are bound to a fiduciary standard that was established as part of the Investment Advisors Act of 1940. They can be regulated by the SEC or state securities regulators, both of which hold advisors to a fiduciary standard that requires them to put their client's interests above their own. The act is pretty specific in defining what a fiduciary means, and it stipulates that an advisor must place his or her interests below that of the client." Source: Investopedia

The Suitability Rule
"Broker-dealers only have to fulfill a suitability obligation, which is defined as making recommendations that are consistent with the best interests of the underlying customer. Broker-dealers are regulated by the Financial Industry Regulatory Authority (FINRA) under standards that require them to make suitable recommendations to their clients. Instead of having to place his or her interests below that of the client, the suitability standard only details that the broker-dealer has to reasonably believe that any recommendations made are suitable for clients, in terms of the client's financial needs, objectives and unique circumstances."  Source: Investopedia

 " ... it's important to clearly define what we mean when we use the term. Even though at least 19% of advisors consider themselves hybrids, there's still confusion around the term. Charles Schwab Corp. defines a hybrid advisor as one whose firm "includes both investment advice rendered as an investment advisor representative of a registered investment advisory firm, as well as brokerage services, which may include advice, as aregistered representativeof an independent broker-dealer."
Source: Investopedia