Fiduciary vs. Suitability Duty: What is the difference?

When it comes to investing advice, two terms often pop up: fiduciary duty and suitability duty. But what do they really mean, and why should you care? Both have key similarities and differences influencing how professionals guide your financial decisions. 

If someone is helping you make financial decisions, it’s best to know these concepts more deeply, so you can make informed decisions about who you work with and what happens to your money. To help you do that, we prepared this special report comparing fiduciary & suitability duties. Let’s jump in to explore these two concepts side by side: 

Fiduciary Duty: Commitment with Clients Interests

Fiduciaries are governed by the Securities and Exchange Commission (SEC) or state securities regulators. Their primary obligation is that they must place their clients' interests above their own. For example, fiduciaries are prohibited from making trades that may result in higher commissions for themselves or their firms. 

Think about this way: Fiduciary duty is like a trusted guide who ensures your interests are at the forefront. They’re that librarian who recommends books solely based on your expressed interests, without any regard for popularity, promotions, or bribes from authors. The essence of fiduciary duty is to offer advice that aligns with the client's needs and objectives. 

Suitability Duty: Aligning with Client's Needs

Suitability duty is governed by the Financial Industry Regulatory Authority (FINRA). Professionals with a Suitability duty must believe that their recommendations are suitable for their clients; additionally, they must fulfill a "suitability obligation”, which is referred to as, making recommendations that suit the best interest of their client. 

If you want a clearer image, imagine a chef who ensures the dish they serve meets your dietary restrictions; it might not be the best dish in the entire world, but it's a dish they believe is still suitable for you and your dietary goals. Additionally, the chef must not recommend something that isn’t suitable for your dietary goals. 

Cuisines aside; in the investment world, professionals with a suitability duty offer advice that fits the client's financial situation and goals. 

The emphasis here is on ensuring that the advice given is appropriate for the client's circumstances. 

The Importance of Context: Choosing the Right Approach

Whether an OZ professional with fiduciary or suitability duties is better for you, can vary based on your personal investment criteria or the situation you’re in. Like choosing between a custom-made outfit or a ready-to-wear piece; both have their place depending on what’s best for you. Also, some investors have higher risk appetites, leading them to explore new & exciting financial products with one professional vs. the other. 

Both fiduciary and suitability duties play vital roles in the investment world, catering to different needs and scenarios. By understanding the nuances of each, individuals can make informed decisions about their financial guidance. It's not about ranking one above the other; rather, it’s about recognizing the unique attributes of each, and then determining which aligns best with one's financial journey. 

Lastly, if you’re researching investments like Opportunity Zones, we want to make sure you know that our OZ advisors have a fiduciary & suitability duty, and are obligated to help you get the best returns: