Understanding Fiduciary Financial Advisors: Definition, Benefits, and How to Find One

Key Takeaways

  • A fiduciary is a financial advisor or firm that is legally bound to act in their clients’ best interests. While there are other standards to which financial advisors can be held, the fiduciary standard is the most stringent. 
  • Working with a fiduciary financial advisor can provide peace of mind because they’re required to practice diligence and transparency across the entirety of the client relationship and can be held legally responsible for any breaches of duty. 
  • To find a fiduciary financial advisor, research RIAs, advisors with their CFP® or CFA, or utilize online databases that exclusively list fiduciaries. 

If you’re searching for a financial advisor, perhaps the most important question you can ask is “Are you a fiduciary?”. But what is a fiduciary and why is it beneficial to work with one, especially when it comes to managing your wealth? 

In this article, we’ll explore what a fiduciary is, how they differ from other financial advisors, and the benefits of working with one. We’ll also guide you through how to identify and find a fiduciary financial advisor. 

What is a Fiduciary? 

A fiduciary is a person or organization that is legally bound to act in their clients’ best interests.  

The fiduciary duty represents the highest standard of care in the U.S financial regulatory system. Professionals held to the fiduciary standard usually manage clients’ assets – a responsibility that demands the utmost integrity.  

Fiduciary financial advisors are ethically and legally bound to center honesty, diligence, and transparency in their practice. 

They recommend financial strategies and products that best meet their clients’ needs – even when it doesn’t earn them a commission or kickback. They avoid conflicts of interest and must clearly disclose even potential conflicts to their clients. They seek out the best prices for the financial products they recommend and are transparent about all fees. They strive to provide advice that is thoroughly researched and accurate. 

Ultimately, fiduciaries are bound to prioritize their clients’ best interests at all times. 

Fiduciary Standard vs. Regulation Best Interest  

Beyond the fiduciary standard, there are other standards to which financial advisors can be held.  

FINRA’s suitability standard is the original standard under which broker-dealers operated. It requires broker-dealers to recommend products that are “suitable” for their client’s general financial situation. It doesn’t stipulate that their recommendations are the best fit for clients’ specific needs.  

In 2020, the SEC elevated the suitability rule with Regulation Best Interest (Regulation BI) in order to hold broker-dealers to a higher standard of conduct. Regulation Best Interest requires broker-dealers and any related persons to consider the best interests of their clients when recommending securities or investment strategies that involve securities. 

While Regulation Best Interest and the fiduciary standard are similar, they differ in several critical ways. While the fiduciary standard requires advisors to prioritize their clients’ best interests in every aspect of the relationship, Regulation BI only requires broker-dealers to do so in regards to investment recommendations that involve securities. Furthermore, while fiduciaries must continuously uphold the fiduciary standard, broker-dealers are only bound to Regulation BI at the time of recommendation. 

In summary, the fiduciary standard is the most stringent. Fiduciary financial advisors must act in their clients’ best interests at all times and in all aspects of the client relationship. 

Benefits of Working with a Fiduciary 

While many non-fiduciary advisors are well-intentioned professionals who genuinely care for their clients, they are not subject to the same fiduciary standards. This means they can choose to prioritize their, their employer’s, or a third party’s interests. This can look like: 

  • Recommending an annuity that earns them a commission – even if a low-cost index fund would perform better 
  • Recommending a mutual fund that earns their firm money – ignoring better and cheaper alternatives elsewhere 
  • Making excessive trades to generate commissions – even if it doesn’t serve the client’s investment strategy 

An advisor being a non-fiduciary isn’t a red flag in itself. However, it does place more responsibility on the client to ask the right questions and stay informed.  

On the other hand, working with a fiduciary, who is bound to prioritize your best interests and practice transparency can foster confidence and peace of mind – which are key when you’re entrusting your advisor with your life savings and goals. 

Furthermore, fiduciaries can breach their duty if they fail to act in the best interests of their clients. For example, if a fiduciary fails to disclose a conflict of interest when recommending a product that earns them a commission, they can be held financially and legally responsible for this violation. 

How to Find a Fiduciary Advisor 

Registered Investment Advisor (RIA) 

All Registered Investment Advisors (RIAs) and the advisors who work at them are fiduciaries. An RIA is a financial firm that offers investment advice, such as a private wealth management firm. RIAs are unique in that they must adhere to stringent ethical practices and regulations such as upholding a fiduciary duty, registering with the SEC if they manage more than $110 million, and meeting compliance requirements with FINRA. 

Certified Financial Planners (CFP®) & Chartered Financial Analysts (CFA) 

Financial advisors with their Certified Financial Planner (CFP®) or Chartered Financial Analyst (CFA) designation are held to the fiduciary standard. The CFP® Board’s website offers a database you can search to find a CFP® near you. 

Databases 

There are several online platforms that partner exclusively with fiduciary advisors and firms that you can use to find a fiduciary near you. 

  • SmartAsset – Financial education platform and fiduciary advisor marketplace 
  • Zoe Financial – Modern database of fiduciary financial advisors who have one or more designations like their CFP®, CFA, or CPA 
  • Harness Wealth – Platform to track all your finances in a single place that also connects you to fiduciary wealth management, tax, and trust and estate firms  
  • NAPFA – Community and database of fee-only fiduciary financial planners 

Summary 

Fiduciary financial advisors are bound to act in their clients’ best interests at all times. For this reason, working with a fiduciary can provide clients with confidence and peace of mind. If you’re looking for a fiduciary advisor, search for RIAs, advisors with their CFP® or CFA, or leverage online databases that partner exclusively with fiduciaries.