Fiduciary Standard : Fiduciary 101

In the investment field, two primary parties are able to offer investment advice to individuals and institutional clients such as pension funds, non-profit organizations, and corporations. These parties are 1.) investment advisors and 2.) investment brokers who work for broker-dealers.  

Many clients may consider the investment advice they receive from an advisor and that which they receive from a broker as similar, but there is a key difference that may not be completely understood by the investing public. The difference pertains to the discrete standards to which each one must adhere, and the distinction has important implications for individuals who hire outside financial assistance.

Investment brokers are only required to fulfill a suitability obligation, which details that the broker has to reasonably believe that any recommendations made are suitable for clients, in terms of the client’s financial needs and objectives. A key distinction in terms of loyalty is also important, in that a broker’s duty is first to the broker-dealer he or she works for, not necessarily the client served.