photo by: Dasroofless

Jason Zweig is a highly respected personal finance writer and editor of The Intelligent Investor column in the Wall Street Journal.  He raises the issue of a “fiduciary standard” versus a “suitability standard” in his most recent column.

One of the key differences between a NAPFA Fee-Only advisor and a broker is that NAPFA advisors serve their clients in a fiduciary capacity.  A fiduciary standard means that your advisor is putting your interests first.  Jason describes why this is important:

“A key factor still is missing from Finra’s suitability requirements: cost. Let’s say you tell your broker that you want to simplify your stock portfolio into an index fund. He then tells you that his firm manages an S&P-500 Index fund that is “suitable’ for you. He is under no obligation to tell you that the annual expenses that his firm charges on the fund are 10 times higher than an essentially identical fund from Vanguard. An adviser acting under fiduciary duty would have to disclose the conflict of interest and tell you that cheaper alternatives are available.

If brokers had to take cost and conflicts of interest into account in order to honor a fiduciary duty to their clients, their firms might hesitate before producing the kind of garbage that has blighted the portfolios of investors over the years.”