Skeptical about whether gross conflicts of interest exist at the largest full-service investment firms? Reading an Op-Ed in the New York Times written by former Goldman Sachs employee Greg Smith might change your mind. A quote from the Op-Ed drives this point home: “I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.”

While there is certainly no perfect, conflict-free business model, the largest full-service investment firms appear to have settled on a business model that doesn’t even try to minimize or neutralize conflicts of interest. Instead, their business models appear to be petri dishes that foster the growth of a toxic, “client-last” culture that Smith describes so well in his Op-Ed. They have way too many products, lines of business, compensation models and ways to make money off clients all housed under one roof. As the icing on this distasteful conflict cake, some would argue that the way these firms are regulated fosters their “client-last” cultures. These firms are regulated under what is called the Suitability Standard.

Under the Suitability Standard, clients must simply receive recommendations that are suitable, or appropriate, to their circumstances. The gaping hole in the standard (and what creates the breeding ground for conflicts of interest) is only obvious when you consider what is missing from this standard—any mention of doing what is in the best interest of the client. They are not required to find what they believe is the best product for you, simply a product that is suitable.

The Suitability Standard does little to help control, minimize or eliminate conflicts of interest. Sadly, and almost inexplicably, this standard makes no reference to doing what is best for the client. Because the Suitability Standard sets the bar so low, and as the Goldman article illustrates chillingly well, there can be a very wide gap between what is legal and what is in the best interest of the client. The suitability standard fuels a mindset of what can the firm legally get away with while maximizing profits to the firm.

But do not despair—there is an alternative. You can find a firm that operates under what is called the Fiduciary Standard. When it comes to finding someone to manage your money, the Fiduciary Standard is probably the most important term you’ve never heard of. While not perfect, the Fiduciary Standard holds many independent advisory firms to a much higher standard. An advisor who works under the Fiduciary Standard is required to put your interests first and do what is best for you. My next post will illustrate with a simple example the difference in the Suitability Standard and the Fiduciary Standard.