Which Regulatory Standard is Driving The Investment Advice You Receive?

In the financial services industry, two primary parties offer investment advice –  Registered Investment Advisors (RIA) and investment brokers – but they aren’t governed by the same standards. 

Investment advisors are guided by the Investment Advisers Act of 1940, work directly for their clients and must place the client’s interests ahead of their own. On the other hand, investment brokers serve the broker-dealers they work for and must only believe that recommendations are suitable for clients as determined by the Financial Industry Regulatory Authority (FINRA). 

What does this key difference mean to you?

While the investment advice you receive from either party may seem similar on the surface, the standards by which each party is bound is decidedly different.  

The Fiduciary Standard: A licensed Fiduciary, such as a Registered Investment Advisor (RIA), has a legal obligation to act in the best interest of their client and holds the RIA to a higher level of duty of care. For example, advisors are prohibited from making trades for their clients that result in higher commissions for themselves or their firms. They must do their best to ensure their investment advice is backed by accurate information, a thorough analysis and avoids potential conflicts of interest.

The Suitability Standard: Unlike RIAs, brokers and insurance agents are held to a lesser standard referred to as the Suitability Standard. Under the Suitability Standard, the broker or agent is only required to sell investments which they believe may be suitable for their clients, but not necessarily what is in the best interest of the client. Note the key distinction in terms of loyalty between the Suitability Standard and the Fiduciary Standard in that brokers serve the broker-dealers they work for and not necessarily their clients.

As of July 1, 2019, the Department of Labor (DOL) now requires investment brokers to act in the best interests of their clients and to provide fiduciary level advice but only when advising on retirement accounts. Assets held outside of retirement accounts will continue to be regulated under the suitability standard. 

To understand if your best interests are being served by your current financial advisor, ask if they are regulated under the Fiduciary or Suitability Standard. At Rubin Wealth Advisors, we put the best interests of our clients first and hold ourselves to a higher, Fiduciary Standard. If you have any questions about your current investments or the investment options available to you, contact Rubin Wealth Advisors at info@rubinwa.com