Residency to Retirement Resource Center
Residency to Retirement Resource Center
January 16, 2020
3 min read

Where does your financial advisor’s duty lie?

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Sanjeev Bhatia, MD 
Sanjeev Bhatia
David B. Mandell, MD 
David B. Mandell

by Sanjeev Bhatia, MD, and David B. Mandell, JD, MBA

In the first article of this three-part series on investing we discussed the potential pitfalls of going it alone; current evidence suggests that most physician investors will benefit from working with a professional. In the second article, we outlined the leading options for professional advice.

In this third installment of the series, we will focus on the type of professional duty a financial advisor has to a client – and why that is so important to understand when deciding who to trust with one’s hard-earned savings.

Particularly, we will explore one fundamental difference between two types of financial advisors that exist in the marketplace: those who have a fiduciary duty to their clients and those who do not. For any physician, understanding this difference is fundamental to making good decisions with their investments.

Understanding fiduciary vs. suitability standards

The distinction between a fiduciary and suitability standard revolves around the requirements for professional ethics and loyalty that the advisor is held to when working with a client. Unfortunately, many investors, including physicians, rely on an advisor without understanding how the advisor is obligated to work with them.


The largest and most popular financial firms are broker-dealers. Broker-dealers are primarily regulated by the Financial Industry Regulatory Authority, under standards that require them to make suitable recommendations to their clients. Instead of having to place his or her interests below that of the client, the broker-dealer’s suitability standard requires only that the broker-dealer reasonably believes that any recommendations made are suitable for clients. A key distinction in terms of loyalty is also important, in that a broker's duty is to the broker-dealer he or she works for, not necessarily the client served.

Do not focus on the term “broker,” as many firms have realized the negative implication the term implies and have begun calling members of their sales force “financial advisors,” a term you may see in their television commercials, print ads and marketing materials.

In contrast to large broker-dealers, a Registered Investment Advisor (RIA) is an advisor or firm engaged in the investment advisory business and registered either with the Securities and Exchange Commission or state securities authorities. An investment advisor under the RIA model has a fiduciary duty to his or her clients, which means that he or she has a fundamental obligation to provide suitable investment advice and always act in the client’s best interests.

While RIAs are the most popular subset of advisors who adhere to the fiduciary standard, there are several others. When choosing a financial advisor, it is essential to research your options carefully and ask at least one simple question.


Doctor A contacts his broker and expresses an interest in investing $50,000 in U.S. growth stocks. The broker invests the client assets in Fund XYZ, which charges a sales load of 5.75% with operating expenses of 0.68% annually. The client will immediately pay a one-time fee of $2,875 on the trade on top of the recurring fund management fee. In this case, the suitability standard has been met.


Doctor B contacts his RIA with the same request. The investment advisor purchases an exchange-traded fund with a gross expense ratio of 0.18% and pays a commission of $8.95 on the trade. This client pays his RIA a management fee of 1% of the assets, which equates to $500 per year on $50,000. The advisor has met the fiduciary standard.

In our very realistic example, the front-loaded fees paid by Doctor A are significant enough that it would require a commitment of approximately 9 years to this fund family before that commission is equal to the sum of advisory fees paid by Doctor B.

The question

Given all of this, the most important question a physician can ask a current or prospective financial advisor is: Do you have a fiduciary duty to me, to put my best interests before yours? It seems pretty simple, but thousands, if not tens of thousands, of investors have never asked this question and, even today, continue to work with advisors who would fail this test. Additionally, even if an advisor states they have a fiduciary duty to you, it is essential that a physician confirm that the advisor is working based on the investment time horizon, risk tolerance and financial goals of the doctor and his or her family.


Understanding how advisors make money and to whom they owe their duty (their clients or their firms) is a paramount first step in finding the right professional to guide you toward achieving your long-term financial goals. Making sure that your advisor understands you and your family’s financial goals is also essential.

Disclosures: Bhatia and Mandell report no relevant financial disclosures.