All CFP® professionals, in accordance with the code of ethics, must adhere to the fiduciary standard.
Being a fiduciary requires CFP® professionals to make decisions with their clients best interest in mind, not their own.
Fiduciaries are also required to disclose all conflicts of interest to the clients. For example, in our practice, when we are recommending an insurance product to a client, we must disclose if we are going to get something out of the deal, such as a commission payment.
As fiduciaries though, we cannot pick a product because it is better for us, it has to be better for the client.
Financial planners who are not CFP® professionals are not required to adhere to this same standard, and instead, adhere to the suitability rule.
Financial professionals who follow the suitability rule are simply required to give advice or product recommendations that are suitable for their client. Their recommendations cannot be clearly bad for clients, but they do not have to be the best.
An example between someone who is a fiduciary versus someone who follows the suitability rule can be seen in car salesperson.
Say you go to a dealership, meet with a salesperson, and describe exactly what you and your family need in a new car. Something reliable, affordable, and can move your whole family from place to place.
A fiduciary would recommend an SUV or a van that would be safe and meet all your requirements for the best value. If they didn’t have the vehicle that met your needs, they would recommend you to someone who did.
A salesperson adhering to the suitability rule would be able to sell you a car that day, even if it wasn’t the best fit for you and your family. They are allowed to put their want for a sale over your needs, as long as the car they sell you roughly fits what you describe.
As you can see, it is going to be highly beneficial for you and your wallet to choose an advisor who falls under the fiduciary standard.
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