Traditionally, brokers and others selling financial instruments have been held to a “suitability standard.” It is assumed that the securities salesperson deserves to earn something for selling to the customer, like the shoe salesperson. Think of it like this. Suitability means it will serve reasonably well, like a pair of shoes that almost fits.

The way regulations are written, financial services firms use disclosures and forms to guide their selling representatives in determining if a sale will cause unreasonable harm. As regulators debate changing these regulations, you can learn a great deal about protecting yourself, even if the final regulation is weak.

It is usually not clear whether the representative is acting as a salesperson, guided by suitability standards, or an adviser, guided by fiduciary standards. Somewhere in the pages consumers sign, it probably says the salesperson is not obligated to fiduciary standards. In the past, that has been enough, although you can always ask.

When a financial instrument is proposed, consumers should know whether the proposal is guided by a suitability or fiduciary standard. At its core, fiduciary means the adviser has the responsibility of providing the client (not customer) with the instrument that best fits that client’s needs under the circumstances. It becomes the fiduciary’s responsibility to use knowledge and judgment to find the best fit, not just something that meets the much lower suitability standards.

The fiduciary adviser can be held responsible for using a cautious process in deciding whether the risk/reward balance is matched to the client’s needs. Yes, there will continue to be volatile markets. The adviser must take this into account as it pertains to each specific client. The fiduciary does not guarantee performance. The fiduciary is responsible for being prudent in the decision process. In picking an adviser, judgment is more important than sales skill.

The kicker in this is the fiduciary is required to set his or her interests aside when making recommendations. Since the adviser will be paid for advice, compensation must be clear. This means if a recommended choice provides the adviser more compensation than others, the difference should be clear in the client’s mind when the decision is made. The client can decide whether the adviser might be influenced by the compensation method.

Our example is one of many that may be used by fiduciary advisers. In writing to clients about returns, the text uses language like “your returns were x% before fees and y% after fees.” This comparison is also in tables presenting portfolio returns. The calculation of fees is a separate table within the reports. And the dollar amount of the fee is provided on a one-page invoice, which is clearly an invoice, with an encouragement that the clients check the calculations for themselves.

Maybe a good public debate on fiduciary standards will come forward as the regulators consider better transparency. It is important to pay attention to this debate, because the debate will educate beyond this introduction to its importance.