Standard of Care: Fiduciary vs Suitability Standard

August 1, 2019


Many investors assume their financial adviser has a duty to act in their best interest.  Depending on the relationship, this may not always be the case.

There are two standards of care for financial advisers in Canada: the suitability standard and the fiduciary standard.

Most financial advisers operate under the suitability standard.  As such, they have an obligation to assess the suitability of an investment they recommend to a client.  If an investment meets a client’s needs and objectives, the suitability standard has been satisfied.  There is no requirement to ensure it is the best option, just a suitable one.

Insurance agents or mutual fund sales representatives are examples of advisers under the suitability standard.  When it comes to placing your money in an investment, they assume the role of a broker.

The Fiduciary standard of care is a much stricter standard.  It is a legal and ethical duty to always act in the client’s best interests.  As an example, doctors, dentists, and lawyers are all fiduciaries. 

Having a hard time understanding the difference?  An adviser operating under the suitability standard could choose to recommend an investment without it necessarily being the best option.  As long as the investment is suitable they are in compliance.

Contrast that with a fiduciary, who not only must recommend suitable options, but who must be able to explain why this recommendation is in fact the best option available.  Therein lies the difference.

The suitability standard in theory could hide a conflict of interest, whether that be a higher commissioned product or some internal sales target.  A fiduciary cannot assume any conflict of interest without disclosure or make an inferior recommendation.

In Canada, the only legal fiduciary investment advisers are portfolio managers with discretionary authority over the client’s accounts. 

This is not to say that you can’t receive great service and objective advice from an adviser operating under the suitability standard.  But choosing to work with a portfolio manager ensures from the outset that your adviser always has your best interest as their primary objective.


Warm Regards,

Joe Basque, BA, CFP® | Financial Planner & Investment Advisor
HollisWealth®, a division of Industrial Alliance Securities Inc.

This information has been prepared by Joe Basque who is an Investment Advisor for HollisWealth®. Opinions expressed in this article are those of the Investment Advisor only and do not necessarily reflect those of HollisWealth.  HollisWealth® is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.