Fiduciaries are bound by law to recommend only financial products, such as investments or annuities, that are in their clients’ best interests. At the minimum, all recommendations must be suitable for their clients’ situations, considering their long-term goals and present financial situation. For example, certain investment products are too risky to be suitable for clients nearing retirement.
However, suitability is only one factor that advisors must consider. Fiduciaries analyze each suitable financial product based only on the benefits it can provide their clients. Unlike financial advisors without this duty, fiduciaries may not suggest specific products to clients in order to earn higher commissions. Fiduciaries must disclose any potential conflicts of interest to the client. Additionally, fiduciaries must ensure that recommended products do not incur excessive transaction fees.