Fiduciary vs. financial advisor: What's the difference? (2024)

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• Fiduciary financial advisors have a legal and ethical duty to put a client's best interest first.
• Financial advisors who aren't fiduciaries still provide professional advice, guidance, portfolio management, and more.
• Some financial advisors follow the suitability standard, which is a looser regulation compared to the fiduciary duty.

Whether you're searching for the best retirement plan, thinking about future education expenses, or looking at estate planning strategies, seeking out a professional is usually the best way to reach your financial goals. But not all financial and investment experts are guaranteed to put your best interest first.

Fiduciaries and financial advisors have similar levels of expertise and generally offer the same services. But the advisors do not offer the same degree of guaranteed trustworthiness, education, experience, and unbiased advice as fiduciaries.

Here's how fiduciaries differ from regular financial advisors.

Fiduciary vs. financial advisor

How a fiduciary works

Fiduciaries are professionals with a legal and ethical responsibility to put a beneficiary's best interest above their own. Fiduciaries must be honest, avoid conflicts of interest, and always act in the best interest of their clients.

Fiduciary advisors earn their fiduciary licenses after five to 10 years of experience, depending on the state. Plus, they must register and pass an exam with the National Association of Certified Financial Fiduciaries (NACFF).

Some fiduciaries may be registered with a different organization or government body depending on their area of specialties. This includes RIAs who are registered with the State Bureau or the Securities Exchange Commission(SEC).

"Requirements vary by state, but in general to become a fiduciary advisor, one must obtain the Series 65 or Series 66 license," says Luis Rosa, founder and financial planner at Build a Better Financial Future LLC.

Fiduciaries follow what is called a fiduciary duty, which includes obligations such as:

• Duty of loyalty
• Duty of care
• Duty of good faith
• Duty of confidentiality and privacy
• Duty of prudence
• Duty to disclose

If a fiduciary financial advisor were to breach fiduciary duty, they could face legal consequences including paying financial compensation of damages, the loss of fiduciary status, or possibly even jail time.

What does a fiduciary cost?

Fiduciary advisors are usually fee-only advisors, which means that they don't earn additional commissions from certain funds or financial products. With a fee-only advisor, you'll pay either a flat fee or an hourly fee. Or you may be charged a percentage of the asset under management (AUM). For example, you may pay between 1% to 3% of your total assets managed by the company.

Before consulting with a fiduciary advisor, make sure to ask how much they charge. Meeting with a fiduciary can become costly. Depending on your needs, you may only need to meet with a fiduciary once or twice. Hourly rates tend to be between $100 to $300 an hour.

But if you need to meet on a long-term, rolling basis, a fixed-fee plan may be more appropriate. For instance, a fixed fee may cost between $1,000 and $3,000 annually.

How to find a fiduciary

You can find a fiduciary advisor by talking with friends or family who have used a fiduciary before, or you can use the SEC's advisor search tool to find registered fiduciaries. You check if a financial advisor is a fiduciary by using FINRA's BrokerCheck database.

How a financial advisor works

Financial advisors are professionals who give expert financial guidance, planning, and portfolio management to clients. They are best for clients seeking out general financial management and advice, but they can also specialize in retirement, estate planning, portfolio building, tax planning, or insurance options.

Before financial advisors can trade for or advise clients, they must pass the Investment Advisor Law Examination from the North American Securities Administrators Association (NASAA)and register with state or federal regulators.

Financial advisors can be traditional financial advisors (such as brokers or registered investment advisors), online financial planning services, or even robo-advisors. The best robo-advisors are ideal for passive traders and beginners wanting to buy and sell low-cost ETFs.

Samantha Gorelick, CFP and managing financial planner at Brunch & Budget says that robo-advisors "... will invest your money automatically via algorithm once you have responded to a risk tolerance questionnaire. Many of these robo-advisors are a good, safe option, and charge relatively low fees. Some of the robos will invest in riskier products than others, so it is important to do research on different companies before choosing the one that is right for you."

If you're looking for affordable financial or investment advice, a non-fiduciary financial advisor may be a good option. However, you won't get the same guaranteed level of unbiased advice that you would with a fiduciary.

What does a financial advisor cost?

Compared to fiduciary advisors, financial advisors are generally cheaper and may be either fee-based or fee-only. Just like with a fiduciary, a fee-only advisor charges clients an hourly, flat, or AUM fee. If the advisor is fee-based, that means they earn additional funds on commissions.

Fee-based advisors may be more inclined to recommend certain investment products or services to earn commissions rather than solely for the benefit of the client. That doesn't necessarily mean that a non-fiduciary advisor will work against a client's best interest. But there's not the same level of transparency as with a fiduciary.

Robo-advisors can charge between 0.25% to 0.50% AUM and may require a minimum investment requirement to open an account.

How to find a financial advisor

You can find the best financial advisors with most advisor databases, including:

• Garrett Planning Network
• XY Planning Network
• The National Association of Personal Financial Advisors (NAPFA)
• Alliance of Comprehensive Planners (ACP)

You can also talk with friends or family who have worked with a financial advisor in the past.

How do you know if a financial advisor is a fiduciary?

Not all financial advisors are fiduciaries. The simplest way to know whether or not a financial advisor is certified as a fiduciary is by asking. You can also verify your financial advisor's certification with the group or state/federal body regulating them. For example, fiduciaries must be registered with the SEC, NACAA, or a state/federal government body.

A fiduciary should be able to give you a definitive "yes" in writing. If not, that may be a red flag. Fiduciary advisors can hold titles such as CFP, AIF, or ChFC.

Financial advisors who are regulated by the Financial Industry Regulatory Authority (FINRA) and work at broker-dealers are not fiduciary advisors. Rather, these advisors are held to the suitability standard, which is a looser version of fiduciary duty. The suitability standards allow financial advisors to recommend investments and services to clients as long as it's suitable for an individual client's goals and financial situation.

"The suitability standard only requires advisors or brokers to have a reasonable basis to believe that a recommendation is appropriate for the client. This is a lower standard than fiduciary, because something that is appropriate or suitable may not necessarily be in your best interest," says Rosa.

Fiduciary vs. financial advisor — Frequently asked questions (FAQs)

Which is best: Fiduciaries vs. financial advisors

Fiduciaries are generally the better option for professional financial advice and management since a fiduciary advisor must act in your best interest. If an advisor has a fiduciary license, they are ethically and legally bound to act in your best interest.

Moreover, fiduciaries are required to have a certain amount of professional experience, as well as a bachelor's or master's degree in finance, accounting, or other relevant field. You're more likely to get trustworthy, unbiased advice from a fiduciary advisor.

That said, a regular financial advisor can still provide sound financial and investment advice at a lower price. Some financial advisors follow the suitability standard, which is a less strict regulatory code. But keep in mind that advisors working with insurance companies or broker firms may be earning additional commissions on certain investment products or services.