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Fiduciary vs. Financial Advisor

Updated: March 30, 2023
By: Timothy Moore
Timothy Moore
Writer
A Certified Financial Education Instructor℠, Timothy brings more than a decade of experience writing and editing personal finance content for top publications. Find his work on sites like USA Today, Forbes, The Penny Hoarder, Insider, HomeAdvisor, SoFi, and Chime.
Writer
Edited by: Jeff Smith
Jeff Smith
Sr. Content Manager
As Retirement Living’s senior content manager, Jeff oversees the product and publishing of all retirement, investing, and consumer wellness content on the site. His extensive expertise in brand messaging and creating data-driven stories helps position Retirement Living as a top authority for senior content and community resources.
Sr. Content Manager
Fiduciary vs Financial Planner

Choosing a financial advisor is an important part of retirement planning, but the process can be overwhelming because of all the different ways such advisors label themselves.

When looking at the different types of financial advisors, it’s important to consider your needs—for example, do you need help with investing, tax planning, or mapping out your retirement?—but it’s also important to find out if the advisor is a fiduciary.

Below, we’ll explore what it means to be a fiduciary and why it’s usually important that your advisor adheres to fiduciary duty.

Fiduciary vs. Financial Advisor: What’s the Difference

Financial advisor refers to professionals who help clients make smart money decisions. It’s an intentionally broad term because financial advisors can do a lot of different things.

They might help with estate and retirement planning or manage a client’s investment portfolio, among other services. But anyone can call themselves a financial advisor—no education, certification, or training required. 

That’s why it’s a good idea to find a fiduciary advisor. Fiduciary advisors must adhere to their fiduciary duty as defined by the SEC, which means they must put the client’s best interests first when making recommendations. They must also divulge any conflicts of interest when working with their clients.

Fiduciary financial advisors are typically fee-only advisors, which means they may charge you a percentage of your assets under management or have flat fees for specific services.

Fiduciary Duty vs. Suitability Standard

Fiduciary advisors are highly regulated, as laid out in the Investment Advisers Act of 1940, which requires anyone who gives investment advice to adhere to fiduciary standards. Financial advisors who adhere to fiduciary duty must put their clients’ interests first, even if it means choosing an investment or product that results in a smaller commission or fee for the advisor.

Some brokers and broker-dealers that label themselves as financial advisors are not actually fiduciaries, yet they still can legally offer advice. Instead, they are held to the suitability standard of care, set by the Financial Industry Regulatory Authority (FINRA).

The suitability standard requires less of advisors. Advisors only need a “reasonable basis” to recommend certain actions and products. It’s a gray area that allows such finance professionals to advise their investors to choose products and services that are “reasonable” but may not be the best choice for their needs. Such advisors might do this because they earn a commission from those products and services.

Common Types of Fiduciary Financial Advisors

In most cases, we recommend choosing a fiduciary for any level of financial advice, whether you’re calculating retirement income, making a debt management plan, choosing the best life insurance, or investing in stocks, bonds, and mutual funds.

Here are some common types of fiduciaries you might work with:

Investment Advisor Representatives

Registered investment advisor (RIA) firms are registered with the U.S. Securities Exchange Commission (SEC) or, depending on the size of the assets they manage, a state-level securities regulator. The firm—and its advisors— is held to fiduciary duty.

Certified Financial Planners

Certified financial planners (CFPs) are another common type of fiduciary advisor. To earn their certification, CFPs must complete a two-part education requirement, have thousands of hours of professional experience, and pass an official examination.

Financial planners who are not certified may not have any formal education or experience—and are not held to fiduciary standards.

Financial certifications like the CFP generally hold their advisors to fiduciary responsibility. That means other certified professionals, like chartered financial analysts (CFAs), chartered financial consultants (ChFCs), and retirement income certified professionals (RICPs) are also fiduciaries.

How to Tell If a Financial Advisor is a Fiduciary

To be a fiduciary, a financial advisor is usually licensed by the SEC or a state regulator or has an official certification, like CFPs. Most fiduciaries advertise their status on their website, but you should always do your due diligence to confirm.

You can check to see if an investment advisor is registered with the SEC via BrokerCheck by FINRA or the SEC’s Investment Adviser Public Disclosure website.If you’re looking for a financial planner, you can verify a CFP’s credentials on the CFP Board.

While we highly recommend fiduciaries for most individuals, especially when you’re thinking about bigger projects, like planning for retirement or managing your investments, it’s important to note that fiduciary fees may be higher. 

Other Considerations When Hiring a Financial Advisor

In fact, commission-based advisors, who are not fiduciaries, may not charge you a cent. Instead, they’ll earn money based on the products they sell you, which may not always be in your best interest.

Beyond fiduciary duty, you may want to include other considerations when choosing a financial advisor. Here are some questions to ask a financial advisor before moving forward:

  • Is there a minimum investment amount?
  • How do you get paid, and what fees should I expect?
  • What is your money management philosophy?
  • What are your certifications and qualifications? Are you a fiduciary?

Bottom Line

Selecting a financial advisor is an important decision. If you’re struggling to choose an advisor to help you, narrow down your search to fiduciary advisors only. An advisor who adheres to fiduciary duty must prioritize your best interests above all else when advising and making decisions on your behalf.