In our latest episode of Focus On…, we turned our attention to a crucial topic in the world of financial advice: the fiduciary standard. As more clients seek financial guidance, understanding the difference between fiduciary and non-fiduciary advisors becomes increasingly important.

For this conversation, I was joined by Anil Abraham, Chief Risk Officer and Deputy General Counsel at Focus Financial Partners. Anil spent over 12 years as a senior attorney at the SEC, advising two SEC chairs and two SEC commissioners, in addition to serving as a financial advisor earlier in his career. Drawing on his legal and regulatory expertise, he shared insights on the ethical responsibilities that govern financial advisors.

Explore the key points from our discussion below, or watch the full episode here:

Fiduciary Standard vs. Suitability Standard: What’s at Stake for Clients?

One of the central topics we discussed is the distinction between fiduciary and non-fiduciary governance standards. While both fiduciary and non-fiduciary advisors help clients with financial decisions, their obligations are very different.

“The difference between [the fiduciary standard] and the suitability standard is quite significant,” said Anil. “When you’re dealing with a fiduciary advisor, you can trust that what they’re saying is in your best interests, and you’re not being told something that will benefit the firm or that advisor [at your expense].”

A fiduciary advisor has a duty of loyalty and a continuous obligation to provide competent care. In contrast, the suitability standard offers a much lower standard of care. It only requires that investment recommendations fit the client’s financial situation and risk tolerance, without the same duty to continuously prioritize the client’s interests. Essentially, it’s a “buyer-beware” situation, where clients must protect their own interests. Recognizing this distinction is crucial, as the fiduciary standard provides far greater protection for clients.

Regulation Best Interest: Helping or Confusing Consumers?

Another topic we discussed was Regulation Best Interest (Reg BI), an SEC rule introduced in 2019 that requires broker-dealers to prioritize their clients’ interests at the time of the recommendation. Anil, who worked on earlier versions of this rule at the SEC, argues that Reg BI exacerbated client confusion about the roles of fiduciary and non-fiduciary advisors. “At one point, [clients] knew whether they were dealing with a salesman or a fiduciary professional,” said Anil. “Now, it’s much harder for them to distinguish that.”

While Reg BI intended to clarify this distinction, it only mandates that brokers act in a client’s best interest for a moment in time, allowing them to present themselves as if they were fiduciaries despite lacking a continuous obligation to protect their clients. Anil believes that the SEC’s intentions were sound but ultimately ineffective.

To address this confusion, he proposed a straightforward solution: prohibit brokers from using titles that imply they provide investment advice, such as “financial advisor” or “financial consultant.” However, he acknowledged that it’s an open question whether the SEC has the authority to implement such a change.

Why Fiduciary Advice Matters: Ensuring Client Interest in a Broader RIA Landscape

As RIAs expand their services to include offerings like insurance and alternative investments, we discussed the broader application of the fiduciary standard. Anil pointed out the importance of recent regulatory clarity, noting, “Happily, the SEC has affirmed that the fiduciary standard applies to the entire scope of an investment advisory relationship.”

This means that advisors maintain their fiduciary duty even when discussing non-securities products like bank loans or most kinds of insurance policies.   

This is particularly important when a financial decision has long-term consequences. For instance, if exiting a product involves high surrender charges or if investing in a product requires a long-term time horizon, it’s critical to receive sound advice up front to make informed and prudent choices.

The Future of Financial Advice: Will the Fiduciary Standard Become Universal?

With so much at stake for clients, the question remains: will the fiduciary standard become the dominant industry model? Anil expressed optimism about its growing influence, reflecting on how much the financial landscape has changed since his early career. He pointed to a dramatic shift in the industry’s key players.

“When I started at my law firm and I had to make those first decisions about 401(k)s, the big brokerages and the big banks dominated the financial advice business,” said Anil. “That’s no longer the case. They have been on their back foot for some time, and firms like our firms have been taking market share from them continuously and inexorably. I think the industry on its own is migrating towards a superior model—the fiduciary model—and I hope that it continues.”

Ultimately, Anil stressed the importance of clients knowing who they’re working with—a fiduciary or a salesperson. At Focus, we understand the many benefits that come from working with a fiduciary advisor, particularly the financial confidence it provides. Clients can trust that their money is being managed in their best interests, without worrying about hidden motives. As the industry moves towards a client-first approach, we believe the fiduciary standard will increasingly become the benchmark of trust in financial advice.