If you’ve ever wondered why two advisors looking at the same situation might make very different recommendations, the answer often comes down to a single word: standard. Specifically, whether the advisor is held to the fiduciary standard or the suitability standard.
This isn’t an academic distinction. It changes what kinds of products end up in your portfolio, how much you pay, and whose interests come first when the two are in conflict.
The two standards in one paragraph
The fiduciary standard requires an advisor to put your interests ahead of their own and their firm’s. Registered investment advisers (RIAs) — firms registered with the SEC or a state regulator under the Investment Advisers Act of 1940 — are fiduciaries. Wilco Financial is one.
The suitability standard requires a recommendation to be merely suitable for you — appropriate given your age, income, and risk tolerance. Under suitability, two recommendations can both be “suitable” even if one pays the advisor a large commission and the other costs you nothing.
Why the difference shows up in real decisions
Consider a 60-year-old nearing retirement who asks about a $200,000 rollover from their 401(k). Both a fiduciary and a suitability-standard broker might recommend an annuity product. But:
- The fiduciary is required to compare that annuity to alternatives — a low-cost IRA, for example — and choose based on your best interest, even if the annuity pays them a commission and the IRA doesn’t.
- The suitability-standard broker is required to recommend something that fits your profile. If the annuity is “suitable” for a 60-year-old nearing retirement, it clears the bar — even if a lower-cost alternative would have served you better.
Both may be legal. Only one has legal accountability for optimizing the recommendation to you.
The hybrid problem
It gets murkier. Many firms operate dual registrations — they’re both a registered investment adviser and a broker-dealer. In the same meeting, a representative can act as a fiduciary for one piece of advice and a suitability-standard broker for another.
This isn’t inherently predatory, but it’s easy to miss. If you’re not sure which hat your advisor is wearing for a given recommendation, ask directly: “Are you acting as a fiduciary for this recommendation?” Then ask them to put the answer in writing.
How to verify
Every RIA files a Form ADV with regulators. Two places to look:
- SEC’s Investment Adviser Public Disclosure: adviserinfo.sec.gov. Search any firm by name. You’ll see the firm’s registration, the individuals licensed with it, their disciplinary history (if any), and the firm’s brochure.
- Direct request. Any RIA will happily give you their Form ADV Part 2A Brochure and Part 3 Customer Relationship Summary. If someone calling themselves an “advisor” can’t produce these, they probably aren’t an RIA.
The “fee-only” shorthand — and its limits
You’ll often see the phrase fee-only as shorthand for fiduciary. It usually does mean fiduciary, because a fee-only firm takes compensation only from clients (no commissions, no product kickbacks, no revenue-sharing). But “fee-only” is self-described, not regulated. Confirm the firm is an RIA and ask specifically about their compensation sources.
Note the difference from fee-based — that term explicitly indicates both fees and commissions, which reintroduces the conflicts that fee-only aims to eliminate.
What to ask any advisor
If you’re interviewing advisors, a short, direct list:
- Are you a registered investment adviser, and are you acting as a fiduciary for me at all times?
- Are you compensated by anyone other than me? (Commissions, 12b-1 fees, revenue-sharing, referral fees.)
- What’s your total all-in cost — advisory fee plus underlying fund expenses — as a percentage?
- Can I see your Form ADV, specifically the Brochure and Customer Relationship Summary?
- Who holds my money? (A good answer names a major independent custodian like Charles Schwab, Fidelity, or Pershing; a concerning answer names the advisor’s own firm.)
The bottom line
The fiduciary standard isn’t a marketing phrase. It’s a legal framework that defines whose interests come first. Knowing whether your advisor is held to it — and in which capacity — is one of the most consequential things you can learn about the relationship.
If you’d like to talk through your current setup and whether the fit is right, we’re happy to have the conversation.