What is a fiduciary financial advisor?
Not every financial professional is required to put your interests first. Here is what the fiduciary standard means, and how to tell who is held to it.
"Fiduciary" is one of the most used and least explained words in financial services. It describes a legal duty, not a job title, and whether someone owes it to you depends on how they are registered.
The two standards
Investment advisers registered with the SEC or a state regulator owe a fiduciary duty under the Investment Advisers Act. In practice that means acting in your best interest and disclosing conflicts of interest, rather than simply avoiding the worst of them.
Broker-dealers and their registered representatives are held to Regulation Best Interest, adopted by the SEC in 2020. Reg BI requires recommendations to be in the customer’s best interest and conflicts to be disclosed or mitigated, but it is a different standard and applies at the point of a recommendation.
Many professionals are dually registered and act in both capacities depending on the product. That is legal and common. It also means the answer to "are you a fiduciary?" can honestly be "sometimes", which is why the follow-up matters more than the label.
What to ask
- Are you acting as a fiduciary in all of our dealings, or only for some accounts?
- Will you put that in writing?
- How are you paid, and does your pay change depending on what I buy?
An advisor comfortable answering all three in writing is telling you something useful. So is one who is not.
How to check for yourself
Registration is public. Every individual has a CRD number, and every firm files a Form ADV describing its services, fees, and disciplinary history. Part 2A is required to be in plain English, and its fee section is usually the most informative page you will read about any advisor.
This guide is general information, not financial, insurance, tax, or legal advice. Rules vary by state and by individual circumstance. Speak to a licensed professional about your own situation.