By Allen Giese, ChFC®, CLU®

Look, there are lots of advisors out there to pick from. And there are lots of differences between them. But if there is one thing that separates them more than anything else, one thing that tells you who may really have your best interest at heart, what would that be?

The answer, I believe, is whether or not your advisor is a fiduciary.

When we’re talking about a financial advisory relationship, a fiduciary standard requires your advisor to put your interests above his own. If your advisor is a fiduciary, it means he legally has to act in the best interest of you, the client.

It means that the advisor has to avoid conflicts of interests and disclose wherever there might be one, and that his or her analysis of your situation must be thorough and complete and as accurate as possible.

Sounds pretty good, right? Isn’t that what you’d want? For your advisor to have your best interests over his own? But the problem is, not all advisors have to follow a fiduciary standard.

Actually, the majority of financial advisors currently don’t have to follow a fiduciary standard. They follow something called the suitability rule.

Now, the suitability rule, in my opinion, is a big step down from a fiduciary standard because under the suitability rule an advisor has to only make recommendations that are consistent with the best interests of the customer. His recommendations need only be suitable for the client’s situation in terms of financial needs, objectives and unique circumstances.

There is also a key distinction in terms of loyalty that’s important, in that the broker’s duty is to his broker-dealer—the company he works for and who pays him—not necessarily the client he’s serving.

Here’s what that means: When it comes to things like transaction costs and fund fees, the suitability standard only says that the recommendation must not be excessive. Say there are two competing fund choices, where both funds invest in exactly the same thing—like, for example, an S&P 500 stock fund—but one fund pays a commission and is twice the expense of the other. The broker, under the suitability rule, can recommend the costlier fund—the one with the commission.

That’s a pretty big conflict of interest that the suitability rule causes. As long as the investment is suitable for the client, the broker can recommend it. This allows brokers to sell their own company’s products ahead of lower-cost competing products. And remember, the broker works for a broker-dealer, and ultimately that’s where his or her loyalty is.

At Northstar Financial Planners, we’ve been following a fiduciary standard for many years. We think it’s clearly the best thing for our clients. If you are interested in finding out more or seeing for yourself how recommendations might differ under an advisor who is following a fiduciary standard, or if you just want to know if you are making good decisions in today’s economy, consider Northstar Financial Planners for a second opinion. Give us a call, and we’ll talk about it. We think you’ll be glad you did.

Thanks for watching, and when it comes to your finances, don’t settle for something that’s just suitable.