The debate over the fiduciary-versus-suitability standard is more relevant than ever.

When shopping for financial advice, American consumers face a head-spinning array of choices. Among the options are large, brand-name brokers or banks, which run national commercials and have branches throughout the country. There are also local businesses of varying sizes. Some have dozens of employees, while others are one- or two-person shops. Other sources of financial advice include community banks and credit unions and local branches of smaller brokerages.

Then there are the growing ranks of robo-advisors. Web-based firms that use algorithms to construct asset-allocated, passive investment strategies for clients. But often, clients are unaware of significant regulatory distinctions throughout the advisory industry. One of the biggest involves the difference between the “fiduciary” and “suitability” standards. In a nutshell, fiduciaries are legally bound to hold clients’ interests first, and make all investment decisions on that basis.

The suitability standard, meanwhile, offers legal protections to clients but is less stringent. It requires a broker’s representative to put his or her clients in investments that are suitable for their objectives, resources, risk tolerance or age. Under suitability, a financial advisor considering two nearly identical funds for a client may sell the one with the highest commission without disclosing that to the client. A fiduciary, on the other hand, would be in violation of his or her duty by not disclosing all the facts.

Last month, President Barack Obama said the Department of Labor would revive a proposal that would require brokers managing retirement accounts to adhere to the fiduciary standard. However, much of the time, clients are not aware of or concerned about the various regulatory distinctions within the financial services industry.

Carl Richards is a certified financial planner and director of investor education for the BAM Alliance, a St. Louis-based asset management program for independent advisors, as well as author of “The One-Page Financial Plan,” due out later this month. In 2004, he left Merrill Lynch, where brokers are held to the suitability standard, and joined a firm using the fiduciary standard.

“When I left the big brokerage firm, one of the things I was most excited about was telling my clients, ‘I’m a fiduciary now.’ It was one of the great disappointments in my professional career that all I got was rolled eyes. Nobody cared or knew what it meant,” he says. “They already assumed I was going to put their interests first.”

Many advisors say the financial services industry itself contributes to client confusion.

“I blame our industry for doing such a terrible job of educating the public on the differences,” says Scot Hanson, a certified financial planner with EFS Advisors in Shoreview, Minnesota.

His firm is structured as both a broker-dealer and a registered investment advisor, or RIA. Broker-dealers are held to a suitability standard, while RIAs are fiduciaries. Hanson says it’s possible to get good planning and investment advice from a broker, but he believes the highest-quality advice comes from certified financial planners at RIA firms.

“Just because someone is on commission doesn’t mean they’re bad or wrong or evil,” he says. “The client has the choice, and can decide if they want to hire me, or if they want to go the other way.”

Staunch critics of the suitability standard say it doesn’t go far enough in protecting clients. Susan Fulton, founder of FBB Capital Partners in Bethesda, Maryland, says broker commissions, and human nature itself, impede transparency under the suitability model. Like many other RIA founders, she left the broker-dealer world to become a fiduciary, establishing her firm in 1989 before the RIA model was well known. She says there are too many inherent conflicts left unaddressed by the suitability standard.

“As a species, we are not a reliable, ethical group. When you put temptation in people’s way and give them conflicts of interest, they are not always going to move in a way that is ethically appropriate,” she says.

Others contend that a commission-based model can, in many cases, be the most cost-effective client option. Gilbert Armour, a certified financial planner and financial advisor at SagePoint Financial in San Diego, offers clients three choices to pay for his services. His firm is dually registered, so he can charge commissions for stock, bond or fund purchases, he can take a fee based on a percentage of assets under management or he can provide planning and advice on an hourly basis.

In most cases, he says, clients choose to pay a commission for his asset-management services because that reduces their costs over time. He says the commission structure makes sense for investors with few assets, such as those making small monthly contributions to a retirement plan. On the other extreme, he says many high-net-worth investors find the commission results in a lower fee versus paying a percentage of assets under management.

“Most traditional load-based funds will allow clients with $1 million in assets to get in at net asset value. They have no sales charge upfront. My only commission downstream is a quarter-point 12b-1 fee,” he explains.

A 12b-1 fee is a commission some mutual fund companies pay to the salesperson.

“In that regard, versus an asset-based fee where I would be charging a percent of assets under management per year, it’s one-quarter the cost over time,” Armour says.

Howard Erman is president and founder of Erman Retirement Advisory in Seal Beach, California. He is also a certified financial planner and chairman of the Financial Planning Association’s Orange County, California, chapter. Erman’s firm also holds dual registrations, but about 75 percent of his business is on the newer RIA side, rather than the legacy broker-dealer side.

He says fees are important and have a bearing on returns, but the most important aspect for a client is whether his or her advisor is viewing the complete planning picture, rather than simply managing an investment portfolio.

“Looking at the investments is a huge part of what financial planners do, but to look at that in isolation means there are many things being ignored,” Erman says. He cites taxes, retirement-distribution planning and estate planning as areas in which a broker without the planning credential may be unable to help.

As with most aspects of the fiduciary-versus-suitability debate. there is room for client confusion when it comes to planning. An investment advisor representative or financial planner is not required to hold the certified financial planner, or CFP, credential. However, even RIAs without that credential are required to uphold the fiduciary standard.

To make matters even more complicated, many representatives of broker-dealers also hold the CFP credential.

For now, Richards says, the most important issue is one of transparency: Is an advisor happy to disclose how he or she is paid? Or does the advisor seem to be obfuscating?

“You should be open and have the dialogue. If you get the sense that somebody is not being honest with you, then that’s bad. Being committed to transparency is more important to me than being committed to a particular label or title,” he says.