Fiduciary vs. Suitability: Why the Distinction Matters

Two Standards of Care

When families entrust their wealth to a financial professional, they reasonably assume that the advice they receive is in their best interest. In practice, the legal standard governing that advice varies dramatically depending on the type of advisor.

Fiduciary Standard: Registered Investment Advisers (RIAs) are bound by a fiduciary duty to act in the client's best interest. This means putting client interests ahead of the firm's own. Conflicts of interest must be disclosed and managed. The advisor must recommend the best available option, not merely an acceptable one.

Suitability Standard: Broker-dealers and their registered representatives operate under a suitability standard. They must recommend investments that are suitable for the client — meaning appropriate given the client's risk tolerance and objectives — but they are not required to recommend the best available option. They may recommend products that generate higher fees for the firm if those products are 'suitable.'

The difference is the difference between 'good enough' and 'best for you.'

How Conflicts Manifest

The practical implications of these different standards appear in everyday decisions:

Product Selection: A fiduciary who identifies two similar investment products — one with an expense ratio of 0.05% and another at 0.75% — must recommend the lower-cost option unless there is a specific, client-relevant reason not to. A non-fiduciary may recommend the higher-cost product if their firm receives a distribution fee.

Proprietary Products: Some firms incentivize advisors to recommend in-house products. Under a suitability standard, this is permissible as long as the product is suitable. Under a fiduciary standard, the advisor must demonstrate that the proprietary product is genuinely the best choice for the client.

Compensation Structures: Commission-based compensation creates inherent conflicts because the advisor earns more by recommending certain products. Fee-only fiduciaries are compensated directly by the client, aligning incentives more closely.

Account Type Recommendations: The choice between a brokerage account and a managed account, or between a traditional IRA and a Roth conversion, can generate very different revenue for the advisor. A fiduciary evaluates these choices purely based on client benefit.

The Regulatory Landscape

The SEC's Regulation Best Interest (Reg BI), effective since June 2020, raised the standard for broker-dealers above the traditional suitability threshold. Under Reg BI, broker-dealers must act in the retail customer's 'best interest' at the time of a recommendation.

However, Reg BI is not identical to a full fiduciary duty:

• Reg BI applies at the point of recommendation; the fiduciary duty is ongoing • Reg BI does not require the broker-dealer to monitor positions after the recommendation • The fiduciary standard applies to the entire client relationship, not just discrete transactions

For families with complex wealth, the distinction between a one-time best-interest recommendation and an ongoing fiduciary relationship is significant.

What to Look For

Families seeking financial guidance should understand the standard of care they are receiving. Key questions to ask any prospective advisor:

• Are you a registered investment adviser or a broker-dealer? (Or both?) • Are you always acting as a fiduciary — or only in certain account types? • How are you compensated? Do you receive commissions, trail fees, or revenue-sharing from product sponsors? • Do you recommend proprietary products? If so, how do you manage the conflict? • Will you provide a written fiduciary acknowledgment?

Transparency in answering these questions is itself an indicator of alignment.

The Altar Rock Standard

Altar Rock is structured as an independent Registered Investment Adviser precisely to align our interests with our clients'. We operate under a fiduciary standard at all times, meaning:

• We are independent from any bank, broker-dealer, insurance carrier, or custodian • We never possess client assets — assets are held by independent custodians (Fidelity Institutional and Schwab Institutional) • We measure performance using independent third parties • We disclose all fees transparently and do not accept commissions or revenue-sharing

We believe families of substantial means deserve complete clarity about who is serving their interests and how. The fiduciary standard is the foundation of that clarity.

You should matter to your wealth manager — not just as part of a book for them to monetize in a roll-up.