Are All Financial Advisors Fiduciaries?

When looking for a financial advisor to help you plan your retirement, you will undoubtedly come across many different acronyms, titles, and certifications that can be hard to keep straight. One such designation we are often asked about by clients is the fiduciary standard. There is some confusion around what exactly a fiduciary is and whether it’s an interchangeable term for a financial advisor. This is actually a very important qualification, and it does not apply to all financial planners. Here is some helpful information about what a fiduciary is and the benefits of working with one for retirement planning.

What Is A Fiduciary?

A fiduciary financial advisor is a professional who is legally obligated to act in the best interests of their clients. This duty means that fiduciary advisors must recommend financial products and strategies that are in the client’s best interest, even if the advisor may earn less in commissions or fees as a result. Working with a fiduciary for retirement planning is important for several reasons, including trust and confidence, objective advice, peace of mind, and better outcomes.

What Is The Difference Between A Financial Advisor And A Fiduciary?

The terms ‘financial advisor’ and ‘fiduciary’ are not synonymous. A financial advisor is a wide-ranging title that can apply to any professional who helps you with your finances or retirement plan. Most fiduciaries are financial advisors, but not all financial advisors are fiduciaries.

How Can I Tell If My Financial Advisor Is A Fiduciary?

Financial advisors are not all created equal. Here are some important qualities that set a fiduciary apart from other financial advisors.

Best Interest Standard: Fiduciaries are obligated to put their clients’ best interests ahead of their own or their firm’s interests.
Transparency: They must be upfront about any potential conflicts of interest and disclose any fees or commissions they might earn from their recommendations.
Duty of Care: Fiduciary advisors have a responsibility to provide competent and thorough advice. This might include ongoing monitoring of a client’s portfolio and regular updates on financial strategies.
Fee Structure: Many fiduciary financial advisors are fee-only, meaning they earn money solely from client fees and not from commissions on financial products. However, being fee-only doesn’t automatically make someone a fiduciary, and some fiduciary advisors might earn commissions. It’s essential to understand an advisor’s fee structure and how they get compensated.
Credentials: While not exclusive to fiduciary advisors, many hold designations that require adherence to a fiduciary standard, such as the Certified Financial Planner (CFP®) designation.
Regulation: In the U.S., the Department of Labor and the Securities and Exchange Commission (SEC) have regulations that pertain to fiduciary standards for advisors, though the specifics can differ depending on the context and the type of advice provided.

When seeking a financial advisor, it’s a good idea to ask them directly about their fiduciary status and have them provide clear explanations regarding how they are compensated.

Do All Financial Advisors Have A Fiduciary Duty?

It’s essential to understand that not all financial advisors are fiduciaries. The financial advisory field is diverse, with professionals operating under different regulatory standards and business models. Whether an advisor is a fiduciary depends on their registration, licensing, and the context in which they provide advice.

Here’s a breakdown of a few different types of financial advisors and whether or not they have a fiduciary duty:

Certified Financial Planners (CFP®): Regardless of their regulatory registration, CFP® professionals are required to uphold a fiduciary standard when providing financial planning services, as mandated by the CFP® Board’s Standards of Professional Conduct.
Registered Investment Advisors (RIAs): RIAs are registered with either the Securities and Exchange Commission (SEC) or state securities regulators. They are required to act as fiduciaries, which means they must put their client’s best interests ahead of their own. RIAs are bound by the Investment Advisers Act of 1940 to this standard.
Broker-Dealers: Historically, broker-dealers were not held to a fiduciary standard but rather a “suitability standard.” This means they only had to ensure that a product was suitable for a client at the time of the recommendation, not necessarily in their best interest over the long term. However, as of 2020, the SEC now requires broker-dealers to act in the best interest of their retail customers when making a recommendation. While this elevates the standard of conduct, there are still nuances between “best interest” and fiduciary duty.
Hybrid Advisors: Some professionals operate as both an RIA and a broker-dealer, depending on the service they are providing. Their fiduciary duty can vary based on the capacity in which they are acting at a given moment.
Insurance Agents: Many professionals who sell financial products, like insurance agents, might provide advice but are primarily compensated through commissions for products sold. They are typically held to the suitability standard unless they also hold other licenses or certifications that require a fiduciary duty.
Bankers: Bankers may sometimes offer advice but are not always held to a fiduciary standard.

How To Find A Fiduciary Financial Advisor Near Me

Many financial advisors with certain credentials or associations are required to adhere to a fiduciary standard. For instance, Certified Financial Planners (CFP®) are bound by the CFP® Board to uphold a fiduciary standard when providing financial advice. Likewise, members of the National Association of Personal Financial Advisors (NAPFA) are fee-only advisors who pledge to act in a fiduciary capacity.

As a fee-only Certified Financial Planner (CFP®) and fiduciary, Zynergy Retirement Planning provides reliable and objective financial advice, which helps build successful, productive long-term relationships with clients. Contact us today to discuss how a fiduciary financial planner can help you plan your ideal retirement.