A fiduciary is someone who is legally required to act in your best interest — not their own. When it comes to financial advisors, this distinction can mean the difference between advice that helps you and advice that primarily benefits the advisor’s commission check.
Related: What Is a QDRO?
Not all financial advisors are fiduciaries. Knowing the difference before you hire one is essential.
Fiduciary vs. Suitability Standard
There are two main standards financial professionals are held to:
- Fiduciary standard: The advisor must recommend what is best for you, period. Conflicts of interest must be disclosed. This is the higher bar.
- Suitability standard: The advisor only needs to recommend products that are “suitable” for your situation — even if a better option exists and even if the current recommendation earns them a higher commission.
Registered Investment Advisors (RIAs) are held to the fiduciary standard. Many brokers and insurance agents are held only to suitability.
How Fiduciary Advisors Are Paid
Fiduciary advisors are usually fee-only or fee-based:
- Fee-only: You pay a flat fee, hourly rate, or percentage of assets. They earn nothing from product sales. This is the cleanest model.
- Fee-based: Charges fees but may also earn commissions. Still often a fiduciary, but has more potential for conflicts.
Commission-only advisors earn money when you buy products. Even if they are technically fiduciaries in some contexts, the incentive structure creates inherent conflicts.
How to Find a Fiduciary Advisor
- Search the NAPFA (National Association of Personal Financial Advisors) directory — all members are fee-only fiduciaries
- Use the SEC’s Investment Adviser Public Disclosure (IAPD) database to verify registrations
- Ask directly: “Are you a fiduciary 100% of the time, for all services?”
Be cautious of vague answers. A fiduciary should be able to confirm in writing that they are always bound by that standard.
When Do You Need a Financial Advisor?
Consider hiring one for major life events: inheriting money, getting married, planning for retirement, navigating a divorce, or starting a business. For simpler situations, low-cost robo-advisors or target-date funds may be sufficient.
Bottom Line
Always work with a fiduciary financial advisor when getting advice that affects your long-term financial health. The standard they are held to directly affects whose interests they are serving.