On the Financial Advice “Suitability” Standard

 It  Does Not Mean What You Think

By Rick Kahkler CFP® 

If you wanted hiking footwear, you probably would be surprised if a salesperson at an outdoors store suggested flip-flops. You would expect someone knowledgeable about hiking to recommend sturdy boots or shoes more suitable for your needs.

In the same way, if you consulted someone who sells financial products, you probably would expect them to recommend investments that are suitable for your needs. In fact, securities law provides a “suitability” standard for financial advisers who receive commissions for selling products like insurance, annuities, or non-public REITs.


Unfortunately, when it comes to investments, the word “suitability” does not mean what you probably think it means. It requires only that the adviser is honest with you and that you are legally able to evaluate and purchase the product. It does not require that the product be good for you to own in terms of being best for or even appropriate for your needs.

On the other hand, securities law requires advisers who charge fees for financial advice to be held to a “fiduciary” standard, which means they must be impartial, unbiased, and work as an advocate for clients.


Assuming a financial representative is giving you “fiduciary” advice when in fact that person is only required to provide “suitable” advice could mean the difference between investment success or financial disaster. I mean for that to sound dire and alarming, because it is. I will even dare to say that understanding the difference between fiduciary and suitable advice is more important than the investment itself.

My alarmist opinion is supported by a recent article, “The Real Cost(s) of Suitability,” by financial editor Bob Veres. To find out whether consumers are actually harmed by relying on “suitable” advice, he gathered stories from over 100 subscribers to his Inside Information newsletter, most of whom are fiduciaries.

These examples are heartbreaking.

They include:

  • Financial advisers who sold high-premium, high-commission life insurance “investments” to customers who, in some cases, had to borrow from retirement accounts or take distributions to pay the premiums—as well as pay income taxes and penalties on the distributions.
  • Financial advisers who moved customers’ conservatively invested retirements funds into high-fee annuities, promising guarantees of no losses and returns of 5% that under scrutiny proved fictitious and will never be realized.
  • Financial advisers who made excessive numbers of trades, not to benefit customers but to generate transaction fees.
  • Financial advisers whose “suitable” recommendations, in too many cases, not only reduced clients’ investment returns, but actually drained clients’ portfolios and greatly damaged their ability to provide adequately for themselves in retirement.

Veres quoted Kathleen Campbell, of Campbell Financial Partners in Fort Myers, FL, as saying, “Suitable means plenty suitable for the broker and not so suitable for the client.” She called suitability “one of the biggest farces in the financial advisory world.”

I absolutely agree. It is essential to know whether a financial representative is held to a fiduciary or suitability standard.

Here’s how to tell the difference:

  • If you pay a fee for financial advice, with no sale or obligation to purchase a product, that’s a fiduciary adviser.
  • If there is no fee, you are dealing with a “suitability standard” broker, agent, or representative who has no legal requirement to give you unbiased advice.


Understanding when you are getting impartial advice that’s in your best interests, and when you are getting conflicted and biased advice that is in the adviser’s best interest, is critical to your financial health.

Please, be wary of advisers whose recommendations emphasize “no fees.” Their “suitable” advice may leave you in a perilous situation—one much worse than wandering through the wilderness in flip-flops instead of hiking shoes. 


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Selecting Money Managers?

Trust but Verify – Caveat Emptor

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By Clifton McIntire; CIMA, CFP® and Lisa McIntire; CIMA, CFP® 

Most physicians and healthcare executives do not manage their own portfolios, or those of their office or medical foundations. Most are more comfortable using outside money managers to make their investment decisions. Just as the general public does not have the facilities, equipment, staff, or training to make medical decisions, physicians generally do not have the time, education, infrastructure or temperament, to make their own investment decisions.

The Style Search 

The search for the right manager(s) begins with creating a “want” list. What kind of a manager do you want? Let’s say you want to find a large cap growth manager. That narrows the field considerably from the start. You are looking for a manger that does research in and understands the field of large growth companies like Microsoft, Walmart, Pfizer, Google, and AOL-Time Warner.   Jim Cowperthwait, Managing Partner of NewBridge Partners, LLC in New York City, is a “growth” manager.  Cowperthwait sums up this philosophy with the statement, “Earnings growth drives stock prices over the long-term. Therefore, we invest our clients’ money in companies whose earnings are expected to grow at 20 percent per year.  Over the long term, this should result in portfolio growth of 15 percent per year.” The other main investment “style” is “value.” 

Value managers buy stocks at a discount to some perceived value.  Generally these stocks pay above market dividend yield, are selling below market price/earnings ratios, and have a low price to cash flow ratio.  Examples of value stocks would be Exxon, Philip Morris, Dupont, and Texas Utilities.  Jim Landau of Berkeley Capital Management in San Francisco, California is a value manager. Landau says, “We look for quality companies with a consistent record of dividend increases and a stock price that is undervalued.” Other styles include the following:

  • Contrarian—invest in stocks that are out of favor or have little market interest
  • Small Cap Growth—small growing companies with high capital appreciation potential
  • Small Cap Value—companies that sell at a discount to some perceived value
  • Market timers
  • Asset Allocators
  • Sector Rotators

Fixed Income Managers 

Managers in the field of fixed income also have a variety of styles. Some are managers of municipal bond portfolios such as John Mousseau of Cumberland Advisors of Vineland, New Jersey.  George Shaffrey of Morgan Keegan & Company of Memphis, Tennessee manages a portfolio of high yielding (average rating “B”) corporate bonds.  Madison Investment Advisors of Madison, Wisconsin offers management of U.S. Government Bonds.  To limit the field even more let us establish some minimum requirements.  To begin with, the performance numbers must be in conformance with AIMR (Association for Investment Management and Research); now CFA Institute, standards.  After that, limit your search to firms with the following characteristics: 

  • Assets under management of at least $1 billion
  • Organization with at least four principals
  • Some independent research
  • Length of time in business  (at least 2 market cycles)
  • Consistent return performance
  • Control of risk well defined
  • Minimum account size within our reach

Software programs are available to screen the world of investment management and come up with a list of potential candidates. CheckFree Investment Services of Research Triangle Park, North Carolina has one of the best. Many others are available. Whether the Bank Trust Department, Private Money Manager or Personal Investment Consultant is being interviewed, here are a few of the questions that should be asked: 

  • Can I get a sample of that report?
  • What kind of performance measurement reporting do I get from you?
  • What due diligence work is done by your organization?
  • What investment/portfolio choices do I have?
  • Who is/are the portfolio manager(s)?
  • How experienced is the portfolio manager?
  • How is he/she compensated?
  • Are you showing me audited performance?
  • How has the performance been? (1, 3, 5 and 7 years)
  • Whose performance is it?  The same portfolio manager as five years ago?
  • Have other key personnel changes been made?
  • Will my account be a separate or commingled account?
  • What are the total costs?  Does that include the following:  ü       [Custody of assets?   Management fee?  Trustee fees?  Transaction fees?  Transaction costs?  Distribution fees?  Termination fees?, etc] 
  • Can I get the costs in writing with a statement that there are no additional costs?


Decision Matrix 

Now decide what’s important to you in a money-manger and weight each matrix or category. Here are four useful qualities to assess each potential money-manager on the same criteria to be as objective as possible.  These areas are organization, philosophy, performance and fit with your overall plan.  Decide how much weight to assign each of these areas and then rank each manager on a scale of 1 (lowest) to 4 (highest) for each manager. 

1. Performance: 

Like some medical P4P initiatives, after installing your manager(s) you must monitor the performance to assure strict and complete conformance with your investment policy statement. You need to compare your returns with standard indexes, your return objectives, consumer price index, and Treasury Bills. It is also important to compare your results with other investment managers with similar investment style. Let’s not forget the very important capital market line analysis, which depicts the risk we experienced for the return we received; or manager expenses and portfolio size.                   

2. Capital Market Line Analysis:

Quarterly in depth analysis of the portfolio is a must. Most institutions require a formal presentation from the consultant quarterly. Your money is certainly as important to you as the fiduciary responsibility is to them. Some consultants let the report always reflect the account from the beginning. The theory is that the more data that we put in, the more accurate the statistics become, but this begins to distort the performance after the fifth year, and data going back to 1940 is not relative to current market environments. Many reports exclude numbers more than five to seven years old. 

3. Expenses:

Expenses can play an important role in performance. You don’t hear much about expense ratios in an up market. If your account was up +28 percent, whether the expense was 3 percent or 1 percent doesn’t seem to make much difference.  But let the market decline and the portfolio with it for a year and we change our perspective. A 10 percent portfolio decline plus charges of 3 percent equals a 13 percent decline.  Now we need a 15 percent increase net of fees just to get even.  Basically you have four cost areas: 

  • Custody—someone must hold the stocks and bonds, collect dividends and interest, prepare tax information for the government, issue monthly statements, and send checks.
  • Commissions—orders must be executed, transfer securities into and out of your account, trades settled.
  • Investment Decisions—the money manager must be paid.
  • Monitoring Performance and Advice—usually an investment management analyst is engaged to provide this service as well as write the investment policy statement and prepare the asset allocation study.

4. Size:

Naturally, size makes a difference. For a stock account with a $200,000 total value, all of the above can be accomplished for annual fees between 2.00 and 3.00 percent.  An account with $1,500,000 in total assets part bonds and part stocks would pay annual fees between 1.25 and 1.75 percent depending on the ratio of stocks and bonds.  These are annual fees and are all-inclusive. Commissions, portfolio management fees, and statements check charges are all included.  One quarter of the annual fee is charged every three months.  Family related accounts are generally grouped for a quantity fee discount. Most all fee structures are negotiable. Some consultants prefer to use mutual funds with smaller accounts.  A charge of 1 percent per year for their service with a stated minimal fee is common practice. This does not include fees deducted from the account by the mutual fund (anywhere from .50 to 2.50 percent) or commissions paid by the fund managers for trade executions.   


Remember, when considering money management, be sure to understand the ultimate fiscal consequences and your own personal liability? Always be sure to use a fiduciary consultant and let the competition for your business begin. 


Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com


Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)



HOSPITALIST DAY: March 2nd, 2023



By Staff Reporters



SHM: National Day Thursday, March 2, 2023, is National Hospitalist Day Occurring the first Thursday in March annually, “National Hospitalist Day celebrates the fastest-growing specialty in modern medicine and hospitalists’ enduring contributions to the evolving healthcare landscape.”

HERE: https://www.hospitalmedicine.org/about/national-hospitalist-day/

CITE: https://www.r2library.com/Resource/Title/082610254



Thank You


ORDER: https://www.amazon.com/Dictionary-Health-Insurance-Managed-Care/dp/0826149944/ref=sr_1_4?ie=UTF8&s=books&qid=1275315485&sr=1-4


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