As an RIA, Forness Financial is held to a higher standard than many financial advisors or firms. In the investment field, there are two primary parties who are able to offer investment advice. These parties are investment advisors and investment brokers who work for brokers-dealers. Many clients may consider the investment advice they receive from each party similar, but there is a key difference. 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.
Registered investment advisors are held to a fiduciary standard that was established as part of the Investment Advisors Act of 1940. The standard requires the advisor to put their client’s interests above their own. The act is specific in defining what a fiduciary means, and it stipulates that an advisor must place his or her interests below that of the client. It consists of a duty of loyalty and care, and simply means that the advisor must act in the best interest of his or her client.
Investment brokers who work with a broker-dealer only have to fulfill a suitability obligation. Instead of having to place his or her interests below that of the client, the suitability standard only details that the advisor has to reasonably believe that any recommendations made are suitable for clients, in terms of the client’s financial needs, objectives and unique circumstances. A key distinction in terms of loyalty is also important, in that a broker’s duty is to the broker-dealer he or she works for, not necessarily the client served.