How to Tell if a Financial Advisor is a Fiduciary

There are 3 ways you can know whether a financial advisor is working in your best interests.

Is your investment advisor a fiduciary? 

It’s critical that you ask your advisor whether or not they’re a fee-only, fiduciary advisor. 

A true fiduciary advisor will always be transparent, and they’ll welcome this conversation with you. Advisors who aren’t fee-only or fiduciary are either commission-only or fee-based, meaning they may earn commissions on the sale of financial products to their clients. This presents a conflict of interest and can prevent the advisor from giving advice that truly puts your best interests first.

So, what is the difference between a fiduciary and a non-fiduciary advisor? Dive in and learn why being a fiduciary affects the advice your advisor gives you.

Defining Fee-Only and Fiduciary

A fee-only advisor is a financial advisor who only receives payment from their clients — they don’t accept commissions on the financial products they recommend. A fiduciary is someone with a legal and ethical obligation to act in their client’s best interests. They adhere to the fiduciary standard, which is a legal obligation that can be taken on by financial advisors, bankers, attorneys, or public service officials.

Advisors who are only compensated by their clients for services provided are able to operate without any conflicts of interest. As a result, they’re able to operate within the fiduciary standard.

A fiduciary advisor:

• Always puts their client’s best interests above their own.
• Advises fairly and honestly with the knowledge and expertise they have.
• Shows prudent judgment in actions and advice.
• Avoids conflicts of interest.
• Discloses all material facts.
• Controls investment expenses in order to help their clients keep and use the majority of their investments according to their unique financial plan.

The only type of firm that can take a fiduciary oath is a fee-only firm, because they only work for their clients. There is no conflict of interest created by commissions when you use a fee-only advisor.