Is your Financial Advisor Legally Obligated to Your Best Interests?

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Does your financial advisor have a fiduciary responsibility to you? This is one of the most important questions that you should ask anyone that you’re thinking of hiring to manage your money, yet many investors don’t understand just what this means. I hope you’ll take a minute to read a Forbes article that explains more about this important concept that every financial woman should understand and embrace.

A fiduciary responsibility legally obligates a financial advisor to put a client’s best interest first in making investment decisions for that client. Many investors assume that a fiduciary exists, especially when they see a CFA (Certified Financial Advisor) certification in marketing and other materials provided by financial professionals, however, this is not always the case. While the CFA Institute certainly promotes always putting the client’s best interests first, a fiduciary responsibility is not a requirement of the CFA designation. The article, written by former SEC attorney Edward Siedle, states:

While CFA Institute expects charterholders to subscribe to a fiduciary standard, many in the brokerage industry are in positions in which they and their employers specifically do not accept this high standard of care. Instead, brokers often subscribe to a more lax “suitability” standard–meaning they are free to promote products that benefit the broker, and brokerage, more than the client, as long as those products are not blatantly unsuitable.

You can see how different the suitability standard is from the fiduciary duty. While the lower suitability standard does not mean that a financial professional won’t do a good job for you, it’s important to understand the difference between the two standards, and know exactly which relationship you have with any financial professional you are considering using. The bottom line: Don’t make an assumption that a credential legally obligates a financial advisor to put your best interests first.