By Rick Kahler via Iris.xyz
If you wanted hiking footwear, you probably would be surprised if a salesperson at an outdoors store suggested flip-flops. You would expect someone knowledgeable about hiking to recommend sturdy boots or shoes more suitable for your needs.
In the same way, if you consulted someone who sells financial products, you probably would expect them to recommend investments that are suitable for your needs. In fact, securities law provides a “suitability” standard for financial advisers who receive commissions for selling products like insurance, annuities, or non-public REITs.
Unfortunately, when it comes to investments, the word “suitability” does not mean what you probably think it means.
It requires only that the adviser is honest with you and that you are legally able to evaluate and purchase the product. It does not require that the product be good for you to own in terms of being best for or even appropriate for your needs.
On the other hand, securities law requires advisers who charge fees for financial advice to be held to a “fiduciary” standard, which means they must be impartial, unbiased, and work as an advocate for clients.
Assuming a financial representative is giving you “fiduciary” advice when in fact that person is only required to provide “suitable” advice could mean the difference between investment success or financial disaster. I mean for that to sound dire and alarming, because it is. I will even dare to say that understanding the difference between fiduciary and suitable advice is more important than the investment itself.
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