Wouldn’t it be nice to know if your car truly needed a specific repair or if your mechanic was just trying to sell you something? When it comes to financial advice, you can get that peace of mind by working with a financial advisor who’s a fiduciary.
Fiduciary financial advisors are legally bound to put your interests above their own. Therefore, regardless of profit or circumstance, their advice must be best for you and not necessarily for their bottom line.
A fiduciary financial advisor is simply a financial advisor who is legally required to act in their client’s best interest. In technical terms, fiduciary advisors have two core obligations to meet in order to fulfill their “fiduciary standard”:
In other words, a fiduciary financial advisor’s job is to give you the best advice possible, even if that advice isn’t in their best financial interest.
When someone is acting as a fiduciary, they are required to act in your best interest. It’s not a light burden, either. These professionals must weigh a wide range of information and expertise and use it for your ultimate benefit.
In addition to fiduciary financial advisors, you’ve likely met other professionals bound by fiduciary duty, including:
In the financial world, a breach of fiduciary duty occurs any time a fiduciary financial advisor acts in a way that works against their client’s best interest. If that happens, the financial advisor may face financial penalties and, in severe cases, be barred from practicing.
When working with a fiduciary advisor, that advisor would be in breach if they:
Believe it or not, it’s pretty simple. You can research a financial advisor’s disciplinary history through any of the following websites:
If your advisor works for a registered investment adviser (RIA) or runs an RIA firm, we suggest you use the SEC’s IAPD website. Here, you can review a firm or individual’s Form ADV — a legally required filing submitted annually to the SEC — which lists all disciplinary disclosures in the past 10 years.
We even have a guide to help you navigate Form ADV.
“Financial advisor” is a title without a precise definition, which means that many different types of financial professionals can hold themselves out as financial advisors. And not all of these professionals are fiduciaries.
Investment advisors are fiduciary financial advisers, meaning financial professionals registered with either the SEC or their state regulatory board. You can search for these advisers in the SEC’s IAPD database or the appropriate state regulator website.
Certified financial planner (CFP) professionals are also bound by a fiduciary duty, meeting experience, education, and exam requirements and adhering to a strict code of ethics.
Brokers, who can make securities transactions on your behalf, are not fiduciaries. Instead, they are bound to the “suitability standard,” meaning they must make recommendations that are reasonably suited for your situation. Those recommendations don’t have to be in your best interest.
It’s also important to understand that some financial advisors are dually registered as investment advisors and brokers. In that case, they can be bound by a fiduciary duty when they give advice, but only by the suitability standard when they execute a trade on your behalf.
Trusting someone with your money is a big deal. After all, your financial decisions will go a long way toward determining the opportunities available to you and your family.
And there are good and bad financial advisors of all types. No specific designation will guarantee that an advisor will give you good advice. But there are a few reasons why working with a fiduciary financial advisor is a good starting point in figuring out who you can trust with your financial future.
First, fiduciary financial advisors are held to legal and professional standards that other financial professionals are not, requiring a certain level of care and competence. Advisors can face severe consequences if they don’t continuously meet those standards.
Second, there’s a good chance that someone who has made an effort to become a fiduciary financial advisor did so because it was important to them. And if it’s important to them, there’s a good chance that they genuinely want to offer advice that’s in your best interest.
Finally, a subset of fiduciary financial advisors are fee-only — they’re only paid directly by their clients and don’t earn commissions for sales of financial products. Fee-only compensation can further minimize conflicts of interest and possibly offer you increased peace of mind.
A financial advisor who is registered with either the SEC or their state as an investment adviser is a fiduciary advisor. If they have the CFP® mark, they are also a fiduciary advisor.
However, there’s nothing quite like an interview to help you clarify an advisor’s fiduciary status. During an interview, you can ask several straightforward questions to determine their fiduciary status.
You deserve to work with someone you can always trust to put your interests first. And while no legal or professional designation can offer a 100% guarantee, working with a fiduciary financial advisor can up the odds that you’ll get better advice that’s in your best interest.
Knowing an advisor’s fiduciary status is just one piece of the puzzle when searching for the trusted financial professional you and your family deserve. If you’re ready for the next steps, consider:
We will use this information to find the right advisor near you
The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.