Hello guys, welcome to the ultimate write-up on Financial Advisor vs a Fiduciary.

If you read this write-up to the end, we promise you will get a good comprehension of what a Financial Advisor and a Fiduciary do and how their roles in the financial world differ from each other.

In today’s article, we specifically look at the role of a regular financial advisor vs a fiduciary.

While they offer very similar financial services, there is one distinct difference in a fiduciary relationship with a client. 

And this plays a part in many financial decisions including:

Drawing up a financial plan
Recommending financial products or investment products
Dealing with wealth management (for example, real estate), investment portfolios, and retirement plans
And others

So if you are unsure of just how these two roles in the financial world differ, this is article is going to lay it straight out for you.

Introduction to Financial Advisor vs a Fiduciary

The world of financial planning is a vibrant one.

And there are numerous job opportunities and positions linked to personal finance if you are looking to become a financial professional. 

What Is A Financial Advisor?

It’s a term many in the finance industry use.

And it does cover numerous bases.

For example, is a registered investment advisor classified as a financial advisor?

Of course.

They give a client advice on their investments, which certainly affects their finances, right?

What about a certified financial planner (CFP)?

Yes, without a doubt.

They fall under the broad banner of a financial advisor as well. 

Financial advisors take many forms and can help clients in numerous ways including with:

  • Running their investment portfolios 
  • Working with retirement accounts (IRAs) 
  • Budgeting for individuals and businesses
  • Estate planning
  • Life insurance
  • Risk management

In a nutshell, a financial advisor is an umbrella term that can be applied to a range of different jobs in finance. 

What Is A Fiduciary Financial Advisor?

While we’ve looked at what a financial advisor is in the broad sense of the word, where does a fiduciary fit in?

Many financial advisors act in the capacity of a fiduciary, while others don’t. 

Yes, a fiduciary is most certainly a financial advisor but one that operates in a particular manner.

This differentiates them from the others.

The difference is pretty simple too.

And it’s this.

Whether they are a stockbroker offering investment advice or someone giving general financial advice, they must do it with the client’s best interest at heart.

There can be no conflicts of interest at all as part of their fiduciary duty. 

Overall, a fiduciary financial advisor is governed by the fiduciary standard and others by the suitability standard.

But why two standards?

Well, the term financial advisor doesn’t have a legal definition per se.

And you will find it used by many people in the finance world, even those that work in a very specific niche, from investment management to broker-dealers.

The term, however, doesn’t indicate just how ethical a person might be and whether potential conflicts of interest will be taken into account or flat out ignored.

This isn’t something that the Financial Industry Regulator Authority (Finra) or the National Association of Personal Financial Advisors (NAPFA) can keep a hand on either.

That’s why individuals making use of a financial advisor and who have done their research, reach out to one guided by the fiduciary standard.

Let’s break down what it is as well as taking a look at the suitability standard in comparison. 

Fiduciary standard

Sometimes called the fiduciary rule, it applies to three kinds of financial advisors:

  • State registered investment advisers help draw up investment strategies and make investment decisions (under the investment advisers act of 1940)
  • Department of Labor financial advisors (DOLs) providing retirement advice
  • Certified Financial Planners (CFPs) helping with financial planning for future financial situations 

Fiduciary duty is applied to these three in different ways.

For example:

  • Registered investment advisors (RIAS) must disclose potential conflicts of interest with their clients
  • Financial advisors must remove all conflicts of interest with their clients
  • Certified financial planners must disclose potential conflicts of interest with their clients

The fiduciary standard means that a financial advisor that adheres to it is always acting in good faith when it comes to their client’s interests.

For example, an investment advisor that will manage someone’s assets responsibly is acting within the fiduciary standard.  

Other provisos of adhering to the fiduciary standard include:

  • Loyalty towards a client
  • Continual good faith towards them in the business relationship
  • Disclosing all material facts regarding their financial requirements, for example, those things that they would consider critical
  • Never misleading them
  • Always disclosing possible conflicts of interest
  • Not using a client’s assets for their own personal benefit
  • Not using a client’s assets to benefit another client in their portfolio

The bottom line is that to ensure you look after your client’s interests and always act in good faith, a fiduciary must:

  • Have integrity
  • Always act ethically
  • Be trustworthy

It’s critical to note that advisors operating under the fiduciary standard are by law operating under the auspices of the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

Suitability standard

Now that we have a clearer understanding of how a fiduciary financial advisor operates, what about one that has a non-fiduciary practice.

An individual or brokerage like that is operating under the suitability standard. 

The difference here is that these are often paid higher commissions on products they sell and don’t have to share this information with their clients. 

Of course, there is no law against them doing this at all.

The only stipulation that the suitability standard defines is the fact that they must provide products that will match their clients’ specific financial situation. 

So for example, if an investment advisor was operating within the suitability standard, they don’t have to disclose any commissions they receive.

They don’t have to operate with the client’s best interests at heart, either.

They do, however, have to provide relevant products for the client’s needs.

For example, selling a client an investment package that performs as well as the others but from which they get a higher commission. 

And this never has to be disclosed to a client at all, although ultimately, they will be paying extra when compared to another suitable investment option. 

Advisors practicing under the suitability standard aren’t in the wrong.

The ability to do so is allowed by authorities.

The thing is, a client that has done their research would probably rather deal with a financial adviser that operates under the fiduciary standard, right?

Types of fiduciary relationships

While we are focussing on fiduciary relationships in the financial field, that’s not the only place you will find them.

Fiduciary relationships provide scope for someone, be it a financial advisor or even an attorney, for example, to act in the best interests of their client.

This can be translated to several areas outside of finance including:

  • Trustee beneficiaries and those overseeing the trust
  • Shareholders and corporate officer
  • Attorneys and their clients
  • Real estate agents and their clients

Breaching fiduciary duty

From what I’ve highlighted above, it’s easy to determine how a financial advisor can breach their fiduciary duty when dealing with a client.

And that’s by not acting in that client’s interest but instead in their own.

A simple example might be not determining the risk tolerance of a client but instead using their own discretion in handling their investments.

Without a doubt, that’s not operating in the interest of that client.

Of course, that’s not the only way.

Here are other ways in which the responsibilities attached to fiduciary duty are not adhered to:

  • Making use of client funds for their own benefit financially
  • Making transactions that their client hasn’t approved
  • Combining a client’s funds with their own
  • Jumping at a decent investment they come across for their own portfolio instead of a client

None of these adhere to the basic rules of the fiduciary standard, especially when it comes to client loyalty and having their best interests at heart.

The consequences of breaking a fiduciary relationship

Well, there are a few.

The most critical, however, would be that clients can take legal action against you as a financial advisor or the company that you work for.

It’s important to realize that a breach of the fiduciary relationship between an advisor and their client is ultimately fraud. 

A financial advisor that has not adhered to the fiduciary standard can even have their registration revoked.

They could also face significant financial penalties. 

How are fiduciary financial advisors compensated?

You will generally find fiduciary financial advisors receiving payment in several ways which they will discuss with a client beforehand.

These are three main fee structures

  • Fee-only advisors: Receive a flat fee when they help their clients
  • Commission-only advisors: Receive commission-based fees when helping their clients
  • A combination of fee and commission: Receive both a flat fee as well as commission-based earnings. 

Fee-only payments are a popular option for a few reasons.

Fee charges are totally transparent and can be either a flat fee per job or charged at an hourly rate.

This is something the advisor and the client will agree upon. 

With a commission-only advisor, payment comes in the sale of the various products they offer to a client. 

This can result in other ways too.

They could be paid per transaction or they could receive money based on a percentage of the total investment made by a client. 

FINA requires that both commissions and fees are always disclosed to a client before any investments are made.

They should also be reasonably priced.

Guidelines from FINA suggest that markups on products sold by financial advisors should never be above 5% and almost certainly under it.

If not, FINA as the regulatory body can look into these scenarios leaving a financial advisor to justify why their markups are higher. 

Note that if a fiduciary financial advisor receives a flat fee as well as commissions, this is still a fee-based remuneration. 

With non-fiduciaries, the payment is almost always by commission but sometimes fee-based as well. 

For the most part, fiduciary financial advisors steer clear of commission-based payments as this can often lead to a conflict of interest.

For example, suggesting to a client a certain financial product that generates high commission but might not be the best option for their specific situation.

Or, if getting commission for each trade made by a client knowing full well that they like to trade often.

Again, that’s not in their interest but yours, and this is called account churning.

It’s a real problem too with conflicting interest costing investors around $17 billion a year according to the Department of Labor.

So can you see why people are turning to financial advisors that operate within the fiduciary standard?

One thing is very certain, however.

When it comes to fee structure and payment, a fiduciary financial advisor is always upfront with their clients.

That means laying out your fee structure for them right from the start with no hidden costs that suddenly appear once investments are made or start performing. 

Common Misunderstandings Related to Fiduciaries

When it comes to fiduciaries and those operating under the fiduciary standard, there are often misunderstandings.

Here are some of the most common:

Fiduciaries have specific certification

No, they don’t.

You don’t go study to be a fiduciary financial advisor, for example.

Instead, a financial advisor that wants to operate as a fiduciary does so under the fiduciary standard.

​There is no test to take or certification to gain, just the rules to follow as set out.

It’s ok to breach the fiduciary standard here and there

No, it isn’t.

It must be upheld at all times with your client’s best interest at the forefront of anything you do for them. 

Civil and criminal penalties can be placed on a fiduciary financial advisor that has intentionally not upheld the fiduciary standard.

This doesn’t apply to situations where a client has suffered losses despite you advising them with the best of intentions.

​Hiring a fiduciary financial advisor will always mean a profit

No, not at all.

An investment advisor acting under the fiduciary standard, for example, doesn’t have any other insight over anyone else.

Markets are fickle and profits are not always guaranteed, no matter who a client invests with.

But there is comfort in knowing that a client’s best interests are always at the forefront of financial decisions someone operating under the fiduciary standard will make. 

Conclusion on Financial Advisor vs a Fiduciary

In summing up, perhaps the most critical thing to note is this.

While someone that is a fiduciary can work with one of the many hats worn by financial advisors, not all financial advisors are fiduciaries.

That simply means that they work under the suitability standard instead of the fiduciary standard.

And they won’t always have their client’s financial well-being at the forefront of their financial decisions.

Are they going to out and out cheat a client out of money, or invest in the worst possible scenarios?

No, they won’t because that’s just going to lead to the individual or brokerage getting fined or even charged.

It does mean that when investment products are similar, they will choose the one that benefits them more, for example, earns a higher commission.

A fiduciary, over and above charging a flat fee over commissions, will choose what’s best for the client in that situation.

That’s why many clued-up clients are looking for financial advisors that operate under the fiduciary standard to handle their financial planning and more.

If you have any questions about fiduciaries or anything else related to this article, please don’t hesitate to drop us a comment below.

We will make sure that we get back to you.

Thanks for taking the time to read this article.

Make sure you look through the website to find more like it



1. Monument Wealth Management

2. US News

3. Investment and Wealth

4. Secatty

5. Investopedia

6. Kaplan

7. Forbes

8. Investopedia

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