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?
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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?
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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?
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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?
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Investment advisers and investment adviser representatives who provide investment advice for compensation.- Who must comply with the suitability standard?
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Broker-dealers and their registered representatives when making recommendations to customers.- What is the duty of loyalty in fiduciary relationships?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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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?
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The broker-dealer must have reasonable grounds to believe that a recommendation is suitable based on the facts disclosed.- What is customer-specific suitability?
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A recommendation must be tailored to the individual customer's specific financial situation and objectives, not just generally suitable.
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