Fiduciary vs. Suitability Standards

It is also important to understand the nature of the service provider’s obligation to his/her clients or the standards to which they are held. Service providers who serve in a fiduciary capacity (registered investment advisors, trustees, custodians) are legally obligated to act in their clients’ best interests at all times. For example, the custodian has a fiduciary responsibility to safeguard the client’s assets at all times; trustees, as well, have legally-mandated responsibility for and discretion over the assets in their care. Fiduciaries are paid to be the wealth owner’s advocate and partner in the process. They must fully disclose any and all conflicts inherent in the relationship, must act with prudence, provide full and fair disclosure of all relevant information, and disclose all fees and costs in writing.

While there has been talk of requiring all financial advisors to adhere to fiduciary standards, there are several providers (private banks, brokers, insurance agents) who are held instead to a suitability standard. This standard dictates that the provider must offer products/investments that are “suitable” for the client, but it does not require the provider to disclose their compensation for the transaction or offer the solution that is in the client’s best interest. In other words, an insurance agent can sell a client the most expensive product – even when other, less expensive options exist – as long as that product suits the client’s needs.

Sustaining Long-Term Relationships

Our research has shown that the following characteristics of Leading Wealth Advisors lead to more successful long-term relationships with family clients:

• Objective financial advice
• Creative solutions to financial problems
• Individualized planning approach
• Delivery of complex services in a consistent manner
• Relationship pricing across the larger family group