In 1998, the SEC adopted the “Plain English” rule for prospectuses – a move designed to help investors better understand the investments they were considering and one that reflected our industry’s commitment to transparency and awareness for investors.
Today, we have a similar opportunity to provide more clarity to the investing public around an essential element of the advisor/client relationship.
The issue? I do not believe that, as an industry, we are doing all we can to actively communicate the difference between “fiduciary” and “suitability” standards to clients. As a result, there may be a disconnect between the services a financial professional is providing and the expectations their clients have. Discussing the distinction between the two standards – which set out the level of responsibility a financial professional has to act in a client’s best interest – is particularly important, especially when professionals serve in both an advisory and brokerage capacity.
The financial advisor/client relationship is built upon mutual trust – and that means being on the same page. Truly championing investor interests begins with ensuring clients have a clear understanding of what each standard requires and how it impacts the support they receive. A fiduciary is legally and ethically required to put client interests ahead of their own, while under the suitability standard, a recommendation only needs to be good enough for the client’s individual situation and can also serve the advisor’s interests.
Too often, these conversations don’t happen, either because advisors assume a level of understanding that isn’t there or because clients don’t realize there are separate standards at all. This is not just a client concern; it’s an issue that impacts the long-term integrity of our industry.
Bridging The Gap
There’s an information gap – and it’s easier to close than many think. Yes, Form CRS and Firm Brochures (ADV Part 2A) outline the standards each firm operates under and satisfy disclosure requirements. However, assuming investors truly understand what they are reading – or read them at all – can be a miscalculation. Some may even hesitate to ask questions in order to appear knowledgeable.
Taking the time to ensure clients understand the nature of your relationship is always time well spent. Making the effort early sets the tone for the future and reflects the level of care and clarity clients can expect throughout the relationship. It also establishes a pattern of open communication from the very beginning.
Regulators have done important work to protect both advisors and clients. This is another opportunity to build on that progress by discussing these standards in a way that’s conversational and easy to understand.
Transparency and authenticity consistently win in the wealth management space.
Transparency and authenticity consistently win in the wealth management space. Culture is what drives these values – a client-first culture of openness, communication, empathy and active listening. Firms that prioritize these conversations are not only mitigating potential compliance risks, they are also creating a competitive advantage among clients who put a premium on clarity. Advisors who can clearly set expectations lay the foundation for stronger relationships and increased client referrals.
When promoting their services, wealth managers and planners often stress their “fiduciary” status – sometimes to the point where investors assume every financial professional is a fiduciary. It’s a buzzword that hasn’t lost its meaning but has become a default assumption. That’s why the fiduciary versus suitability conversation should be one of the first topics discussed with clients. It should be clearly articulated, ideally using simple examples to illustrate how it affects the relationship.
Ultimately, this isn’t just about definitions – it’s about alignment. When clients clearly understand how their advisor is obligated to serve them, trust deepens, expectations are aligned and relationships are stronger from the start. As an industry, we have both an opportunity and a responsibility to make that understanding the norm, not the exception.
Shehab Mohammad is CEO and President of Artisancap, a DBA of hybrid RIA NWF Advisory Group, whose advisors specialize in financial, retirement, education and insurance planning and solutions.
