How do fiduciaries get paid?

A fiduciary gets paid after providing a service for a client, and they can follow one of three compensation models: commission-based, fee-only, or commission and fee. Typically, fiduciaries choose a fee-only model because it has the lowest risk of conflicts of interest because the client pays them for a specific service. Most fiduciaries avoid a commission-based model because they benefit financially from the sale. Accepting a commission does not directly violate the fiduciary agreement because it's possible that a particular product or investment is in the client's best interest. However, it can create the illusion of a conflict of interest.

What is the difference between fiduciary and suitability financial advisors?

A suitability financial advisor follows the Financial Industry Regulatory Authority's suitability rule. This means they agree to recommend products and strategies that are suitable for the client and do not have to ensure they are in the client's best interest. Unlike a fiduciary advisor, a broker following the suitability rule does not have to share with the client conflicts of interest. This means they can recommend products they receive a commission from as long as they believe it will be a good option for the client.

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Fiduciary vs. Financial Advisor: What’s the Difference?

May 14, 2025

6 min Read

Written by Allison Hache

Edited by Emily Gadd

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When you start looking for a financial advisor, you’ll discover they have an array of titles and professional designations.

You’ll also notice a number of advisors who say they are fiduciaries, and you may wonder what makes them different from other types of advisors who do not use the term. Here’s what you need to know.

Feature	Fiduciary	Financial Advisor
Legal obligation	Acts in a client’s best interests	Makes suitable recommendations
Compensation	Fee-based	Commission-based
Investment decision authority	Directly manages portfolio	Can directly manage portfolio or just make recommendations
Disclosure of conflicts	Always required	Not always required

What Is a Financial Advisor?

Financial advisor is a broad term that describes professionals who assist clients with decisions about investments, money management, financial goals and more.

They may concentrate in an area like retirement planning or estate management. Some sell finance-related products like insurance, and others advise clients about taxes. A financial advisor who manages investments like stocks and bonds must have a license and register with the Securities and Exchange Commission.

The following titles can fall under the umbrella of financial advisor:

Accountant
Asset manager
Broker
Chartered financial analyst
Financial planner
Portfolio manager
Wealth manager

What Is a Fiduciary?

A fiduciary is a person who agrees to oversee property that belongs to someone else, and they do so on the other person’s behalf.

Loved One

For example, you may have a power of attorney that gives you the authority to access a parent’s bank account to pay their bills when they are incapacitated. You also agree to keep accurate records of how you spend the money and make sure everything you do is in your parent’s best interest.

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Fiduciary in Finance

In finance, the term fiduciary refers to a financial advisor who puts the needs and interests of their clients first while managing their assets — even if it cuts into the advisor’s earnings. They agree to follow a code of ethics, which includes sharing with the client current or possible conflicts of interest and explaining how they make money. For example, an advisor who earns a commission for each insurance policy they sell must disclose this information to the client if they recommend the product because it’s in the client’s best interest.

Fiduciary vs. Financial Advisor: What’s the Difference?

The primary difference between a fiduciary and a financial advisor is that a fiduciary is legally obligated to act in a client’s best interest. This may seem like it should be the standard for all types of financial advisors, but in a legal sense, it is not.

Recommendations

Traditional financial advisors, such as brokers at a financial services firm, are only legally required to make suitable recommendations for clients, based on their investment objectives and risk profiles. This means that financial advisors can choose from a number of suitable investments to recommend to a client, rather than the absolute best option. This can tempt some financial advisors to steer clients to investments that, while suitable for clients, pay them higher commissions or fees.

Fiduciaries, on the other hand, are held to the higher standard of picking only what is in a client’s best interest, regardless of how much — or how little — they may earn from it.

Payment Structure

This is one of the many reasons why many fiduciaries are fee-based, rather than commission-based. By working for an annual fee, fiduciaries are in a better position to align their own interests with those of their clients.

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When a financial professional is not incentivized to pick an investment because it pays a higher commission, it makes it easier to serve a client’s best interests. This isn’t to say that ethical financial advisors don’t practice the same diligence in serving their clients. But it does mean that they are not legally obligated to do so.

Management Style

Fiduciaries also typically directly manage client investments rather than simply offering advice. Whereas a financial advisor may merely make recommendations and build financial plans for clients, fiduciaries often make decisions as to which investments clients should own and then execute those trades on the behalf of clients, without getting specific approval for each individual trade.

How Do You Know If a Financial Advisor Is a Fiduciary?

The most direct way to find out if your financial advisor is a fiduciary is to ask them. Here are some questions to consider, according to a fact sheet from the U.S. Department of Labor Employee Benefits Security Administration:

Do you consider yourself a fiduciary? If the answer is no, find out why. If the answer is yes, ask them to give you a written document stating they are a fiduciary and promising to let you know about potential conflicts of interest when they provide recommendations.
How are you compensated? It’s helpful to know whether your advisor gets paid by a fee charged to you or a commission received from the products they sell to you. If the advisor receives a commission, you can ask for a list of the products and the percentage they get.
Are you a licensed or registered investment advisor? You can check with the licensing agency to verify the advisor’s membership. Also, consider asking about disciplinary action or claims against the advisor from previous clients.

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Certifications a Fiduciary Can Have

Another way to identify a fiduciary is through the titles the advisor has. An advisor with any of the following certifications belongs to an organization that expects its members to act in the client’s best interest:

Accredited Investment Fiduciary (AIF)
Certified Financial Planner (CFP)
Chartered Alternative Investment Analyst (CAIA)
Chartered Financial Analyst (CFA)
Certified Financial Fiduciary (CFF)

FAQ

How do fiduciaries get paid?
- A fiduciary gets paid after providing a service for a client, and they can follow one of three compensation models: commission-based, fee-only, or commission and fee. Typically, fiduciaries choose a fee-only model because it has the lowest risk of conflicts of interest because the client pays them for a specific service.
- Most fiduciaries avoid a commission-based model because they benefit financially from the sale. Accepting a commission does not directly violate the fiduciary agreement because it's possible that a particular product or investment is in the client's best interest. However, it can create the illusion of a conflict of interest.
What is the difference between fiduciary and suitability financial advisors?
- A suitability financial advisor follows the Financial Industry Regulatory Authority's suitability rule. This means they agree to recommend products and strategies that are suitable for the client and do not have to ensure they are in the client's best interest. Unlike a fiduciary advisor, a broker following the suitability rule does not have to share with the client conflicts of interest. This means they can recommend products they receive a commission from as long as they believe it will be a good option for the client.

John Csiszar contributed to the reporting for this article.

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