The fiduciary standard for investment advisers and how it differs from the broker-dealer suitability standard, tested on the Series 65 and 66 exams.
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- What is a fiduciary obligation in investment advising?
- An obligation to act solely in the client's best interest, placing client interests above the adviser's own interests.
- What standard governs broker-dealer recommendations?
- The suitability standard, requiring recommendations to be suitable to the customer's financial situation, needs, and objectives.
- How does the fiduciary standard differ from the suitability standard?
- The fiduciary standard requires acting in the client's best interest; suitability requires recommendations to be suitable but does not require the best option.
- Who must comply with the fiduciary standard?
- Investment advisers and investment adviser representatives who provide investment advice for compensation.
- Who must comply with the suitability standard?
- Broker-dealers and their registered representatives when making recommendations to customers.
- What is the duty of loyalty in fiduciary relationships?
- The requirement that a fiduciary place the client's interests before the adviser's own interests.
- What is the duty of care in fiduciary relationships?
- The requirement that a fiduciary act with the competence, diligence, and prudence of a professional in the field.
- What does the suitability standard require before a recommendation?
- The broker-dealer must have a reasonable basis for believing the recommendation is suitable to the customer's profile.
- Why is the fiduciary standard stricter than the suitability standard?
- Because it requires advisers to recommend the best option for the client, not merely an option that is suitable.
- How must an adviser handle conflicts of interest under the fiduciary standard?
- Full disclosure of the conflict and either elimination of the conflict or client consent after full disclosure.
- How must a broker-dealer handle conflicts of interest under the suitability standard?
- The recommendation must be fair and balanced despite the conflict, and the conflict should be disclosed to the customer.
- What is the best interest standard?
- An obligation to recommend the investment option most likely to benefit the client given the client's circumstances.
- What factors must an adviser consider when making a recommendation?
- The client's age, time horizon, risk tolerance, investment objectives, financial situation, and other relevant personal circumstances.
- What is reasonable basis in the suitability context?
- The broker-dealer must have reasonable grounds to believe that a recommendation is suitable based on the facts disclosed.
- What is customer-specific suitability?
- A recommendation must be tailored to the individual customer's specific financial situation and objectives, not just generally suitable.
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