Is My Financial Advisor a Fiduciary?

Before committing to a financial advisor, it helps to know whether that professional is a fiduciary. Fiduciaries must act in a client’s best interest at all times, while brokers follow a separate standard under Regulation Best Interest, which applies only when making specific recommendations. While the titles may sound interchangeable, they reflect different legal standards and responsibilities.

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What Is a Fiduciary?

Legally speaking, a fiduciary is someone who is required to act in the best interest of someone else. Fiduciaries have a bond of trust with another person (called the beneficiary or principal) and have a legal obligation to act for the beneficiary’s benefit and not their own. Banks, firms and individuals can all act as fiduciaries, but not every service or person is bound by law to represent your best interests.

Are All Financial Advisors Fiduciaries?

Not all financial advisors are fiduciaries. Those registered as investment advisors with the SEC or state regulators have a fiduciary duty to act in their clients’ best interests, including disclosing conflicts and avoiding self-serving recommendations. Brokers, on the other hand, operate under Regulation Best Interest, which applies only when making recommendations and allows for commission-based compensation.

If you’re looking for a financial advisor, consider one who is a fiduciary, sometimes called a fiduciary financial advisor.

A fiduciary is less likely to recommend products that pay higher commissions but don’t match your needs. Non-fiduciary advice can lead to higher fees, misaligned investments and lower long-term returns, particularly if recommendations favor the advisor’s incentives over your financial goals.

How Can You Be Sure Your Financial Advisor Is a Fiduciary?

Because the laws governing the financial services industry are complex and specific, there are a few ways in which you can be sure your financial advisor is a fiduciary.

First, you could simply ask. Most advisors will respond candidly if they are fiduciaries or not. There is even an organization, the National Association of Personal Financial Advisors (NAPFA), which requires affiliated financial advisors to be fee-only fiduciaries.

Second, you could verify if your financial advisor is certified or registered with certain groups or governing bodies.

A registered investment advisor (RIA) is an individual or firm registered with the SEC or a state regulator. As such, RIAs have a fiduciary relationship with their clients. RIAs must disclose all conflicts of interest and outside business activities in their Form ADV. However, disclosure alone satisfies the legal requirement—an RIA may still recommend options that benefit their own business.

On the other hand, a Certified Financial Planner™ (CFP®) is a professional certified by the CFP Board who has passed extensive training and exams. CFPs are held to stringent standards and must uphold their fiduciary relationship with financial-planning clients or they will lose their certification.

A chartered financial analyst (CFA) is another professional who has undertaken extensive training in investment management. Charterholders are also held to an ethical code that imposes a fiduciary relationship between the CFA and investment management clients. Both CFPs and CFAs will likely disclose their fiduciary obligations to their clients without prompting.

Bottom Line

Fiduciaries must act in your best interest, but the term “financial advisor” carries no legal standard on its own. You should always ask if a potential financial advisor is a fiduciary, and you can verify this by checking the advisor’s Form ADV, which should disclose potential conflicts of interest. Certain professional credentials and affiliations may also signal fiduciary status.

Tips for Building Wealth

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