What Is a Fiduciary Financial Advisor? Why It Matters When Choosing One 

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Fiduciary financial advisors are legally obligated to put their client’s interests ahead of their own. 

Other financial advisors are only obligated to make suitable recommendations for clients. The difference may appear subtle, but it carries major weight.

Here’s an in-depth look at why you should always consider working with a financial advisor who adheres to the fiduciary responsibility standard.

What Is a Fiduciary Financial Advisor?  

Fiduciary duty requires an advisor to always act in a client’s best interests, even if those interests conflict with the advisor’s own. 

Good To Know

Fiduciary advisors are regulated under the Investment Advisers Act of 1940, which holds them to a higher standard of care. This law ensures they act in their client’s best interest and are overseen by the Securities and Exchange Commission (SEC). 

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

A fiduciary financial advisor must legally act in your best interest, while a non-fiduciary is only required to suggest options that are considered suitable — even if they’re not ideal for you.

Fiduciaries are typically fee-based and regulated by the SEC, while non-fiduciaries may earn commissions and are overseen by FINRA. That’s why fiduciaries are generally held to a higher standard and less likely to have conflicts of interest.

Here’s an example:

• You have $50,000 to invest and you’re behind on retirement savings.
• The smartest move? Put the money into a tax-advantaged retirement account to catch up.
• However, some advisors earn a commission by steering clients into taxable investment accounts instead. This may benefit them, not you.
• A fiduciary advisor, however, is legally required to recommend the option that’s best for you — which, in this case, means focusing on retirement.

Types of Fiduciary Financial Professionals  

Some financial advisors are fiduciaries. You might also work with different fiduciary professionals, like lawyers, on various aspects of your finances. 

Here’s a look at the most common fiduciary financial professionals:

• Financial advisor registered with the Securities and Exchange Commission
• Certified financial planner (CFP)
• Trustees
• Attorneys
• Retirement plan administrators 

Pros and Cons of Fiduciary Financial Advisors  

Working with a fiduciary financial advisor has numerous benefits, but it may not be the right fit for everyone. Here’s what to consider when you hire an advisor. 

Pros

• Must act in your best interest
• Transparent fees
• Strictest regulations 
• Unbiased advice 

Cons

• Higher upfront cost
• Less flexibility
• Might investment limitations

How To Find a Fiduciary Financial Advisor 

Take the following steps when you choose a financial advisor to ensure you find a fiduciary. 

Talk With Family and Friends

Start with recommendations for a trustworthy financial advisor from your network of friends, family members and colleagues. Ask these people for their honest opinion on any financial advisors they recommend.

As you are getting recommendations, try to keep your financial goals front of mind so you find someone who’s a good fit for your situation.

Check Online Databases

The quickest way to find out if a financial planner is a fiduciary is to check online databases that maintain listings of those professionals.

Here’s where you can find more information online:

• The National Association of Personal Financial Advisors: Financial advisors who are NAPFA-affiliated are fee-only fiduciary advisors. Search the online database at NAPFA to find one of these professionals near you.
• CFP Board: All certified financial planners are required to be fiduciaries. Visit the CFP Board to verify a financial planner’s CFP certification.
• The Financial Planning Association: The FPA also maintains listings for certified financial planners. Visit FPA PlannerSearch to begin your search.

Prepare Questions To Ask

Many financial advisors offer a free consultation so you can ask questions and make sure it’s the right fit. But even if an advisor doesn’t provide one, you can contact them and create a list of questions to ask an advisor.

For example, you might want to ask about their credentials and if they’re registered with the SEC to confirm whether the advisor will work in your best interest. 

Pro Tip

Watch out for advisors who work on commission and aren’t upfront about how they get paid.

You may decide to work with a commission-based advisor, but transparency is essential.

What Happens If Fiduciary Duty Is Breached?  

Fiduciary advisors have a legal duty to put their clients’ interests first. If there’s a breach of duty, the advisor can face the following consequences:

• Legal action: You might be able to sue the advisor for breach of duty. 
• Regulatory discipline: Advisors might receive disciplinary action from the SEC or FINRA.
• Criminal charges: In some cases, it could lead to fines or jail time. 

Is Hiring a Fiduciary Financial Advisor Worth It?

A fiduciary financial advisor can be worth it especially if you want advice that puts your best interests first. Fiduciary advisors aren’t necessarily more expensive than other types of advisors. The most significant difference is how and when the advisor gets paid.

Fiduciary advisors usually charge an upfront fee, while other advisors might earn money on commissions after selling you a specific financial product. 

Any registered representative can enter the same trades as any other financial advisor, and many of them share the same basic knowledge of markets and investments. That said, should a situation arise in which a broker’s best interests might collide with your own, you could end up on the short side of the encounter.

Final Takeaway: Choose an Advisor Who Puts You First  

There are different times in life when seeking the advice of a financial advisor can help. Financial advice is relationship-based, and if you’re working with a professional you are sure you can trust, you might not need to switch to a fiduciary financial advisor.

However, keep in mind that when you have a fiduciary financial advisor, you can rest assured that the person on the other end of the phone or table is always acting in your best interest.

The fiduciary relationship is a legal requirement. It can provide reassurance that you’re receiving advice that’s in your best interest. For many investors, that’s a priceless investment in and of itself.

Cynthia Measom and John Csiszar contributed to the reporting for this article.

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