A financial advisor can be anyone who gives financial advice, while a fiduciary is a type of financial advisor who is legally and ethically required to put your interests above their own.
By Mike Rogers, AIF®, Founder and President of 360 Financial
Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.
Non-fiduciary advisors may recommend suitable products, even if they aren’t the lowest-cost or most beneficial to you, potentially earning commissions on those products. In contrast, fiduciary advisors must recommend investment products that best suit your needs and are usually compensated by a flat fee or a percentage of assets managed, avoiding conflicts of interest common in commission structures.
This fundamental difference in obligation can impact the advice you receive. Fiduciaries may provide more impartial guidance than advisors who are not fiduciaries. This is crucial for anyone with substantial assets to consider.
When selecting an advisor, understanding this distinction is key to ensuring your wealth is managed with transparency and your financial goals are prioritized.
Common Questions About the Difference Between a Financial Advisor and a Fiduciary
Should I use a fiduciary or regular financial advisor?
You should work with the financial advisor who is most qualified and with whom you feel comfortable. In many cases a fiduciary may be a better fit for you as fiduciaries are ethically bound to act in your best interests, providing more assurance that your financial plans align with your goals and needs. However, there are also regular financial advisors who are also excellent. Ensure that you feel comfortable with whomever is managing your investments.
How do you determine if a financial advisor is a fiduciary?
You can determine if a financial advisor is a fiduciary by asking them directly, checking for relevant certifications like CFP® or CFA, or verifying their status on regulatory websites like the SEC’s Investment Adviser Public Disclosure (IAPD).
What are the disadvantages of a fiduciary?
The disadvantages of a fiduciary may include potentially higher fees due to their in-depth service and a limitation to products they believe are in your best interest, which might restrict a broader market view. For most investors, this is not a problem.
What are the potential benefits of working with a fiduciary over a regular financial advisor?
The potential benefits of working with a fiduciary over a regular financial advisor include receiving unbiased advice, more transparent fee structures, and the assurance that your advisor is held to the highest ethical and professional standards.
How do financial advisors and fiduciaries differ in their responsibilities?
Financial advisors and fiduciaries differ in their responsibilities in that fiduciaries must legally prioritize their client’s best interests above their own, while non-fiduciary advisors are only required to recommend products that are suitable — not necessarily best — for clients.
Are all financial advisors fiduciaries?
No, not all financial advisors are fiduciaries; the fiduciary status of an advisor depends on their certifications, the nature of the advice they provide, and their registration with regulatory bodies.
Do fiduciaries have different legal obligations towards their clients?
Yes, fiduciaries have different legal obligations towards their clients, as they are required by law to act solely in their clients’ best interest, a standard that surpasses the “suitability” requirement of non-fiduciary advisors.
Are there specific situations where one might be more suitable than the other?
Yes, specific situations where one might be more suitable than the other include complex financial planning or significant investment decisions, where a fiduciary’s higher standard of care is beneficial, whereas basic investment guidance or one-time financial advice might be suitably handled by a non-fiduciary advisor.
About the Author
Mike Rogers
Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters. In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”
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This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.