Fiduciary Duty

A fiduciary duty is a legal and ethical obligation to act in another person's best interest. In financial planning, a fiduciary advisor is required to put your interests ahead of their own, provide suitable recommendations, disclose conflicts of interest, and charge reasonable fees. Not all financial professionals are held to this standard.

In the context of financial planning, fiduciary duty is the legal obligation of an advisor to act in the best interest of their client at all times. This means the advisor must prioritize the client's needs above their own financial interests, provide advice that is suitable and appropriate, fully disclose any conflicts of interest, and charge fees that are reasonable for the services provided.

Not all financial professionals are fiduciaries. Registered Investment Advisors (RIAs) and their investment advisor representatives are held to a fiduciary standard under the Investment Advisers Act of 1940. Certified Financial Planner (CFP) professionals are also held to a fiduciary standard when providing financial planning or advice. However, broker-dealers and their registered representatives have historically operated under a "suitability" standard, which requires only that recommendations be suitable — not necessarily in the client's best interest.

The SEC's Regulation Best Interest (Reg BI), effective since 2020, enhanced the standard for broker-dealers, requiring them to act in the client's best interest at the time of a recommendation. However, Reg BI is not identical to a full fiduciary standard and does not require ongoing monitoring of recommendations or the elimination of all conflicts of interest. The distinction between fiduciary duty and Reg BI continues to be debated within the industry and among consumer advocates.

When selecting a financial professional, it may be worth asking whether they serve as a fiduciary at all times, not just during certain interactions. Some advisors wear "two hats" — acting as a fiduciary when providing investment advice through their RIA, but operating under a different standard when selling insurance or brokerage products. Understanding which hat your advisor is wearing at any given time could help you evaluate the advice you receive more critically.

Why This Matters

Working with a fiduciary may provide greater assurance that the advice you receive is designed to benefit you rather than generate income for the advisor. Asking whether a professional is a fiduciary — and whether they serve in that capacity at all times — is one of the most important questions you can ask when choosing a financial advisor.

Have questions about Fiduciary Duty?

Understanding the concepts is the first step. If you would like to explore how this applies to your situation, schedule a complimentary conversation.

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