What is a Fiduciary Financial Advisor?

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There may come a time in your life when you realize you need assistance in managing your money and investments. Hopefully, this is because you’ve accrued so much wealth that you are not sure how to handle it. 

But even if you’re not ultra-rich, many highly qualified people can assist you in managing your money and setting you up on a path to financial freedom.

One of these qualified people is a fiduciary financial advisor. These advisors often referred to as “fiduciaries” are held to a high standard of ethics and competence, and can play a major role in the success of your financial planning. 

In this article, we’ll examine what a fiduciary financial advisor does and what separates them from other kinds of advisors.

What Does “Fiduciary” Mean?

Two women discussing finances together

A fiduciary financial advisor can help you with everything from retirement planning to handling your taxes and even helping you develop a plan for a small business. 

They are charged with putting your financial interests above their own and must provide guidance and counsel that is appropriate for your circumstances. 

The term “fiduciary” is often used as a noun to describe someone who has a fiduciary obligation to their clients. In the most basic sense, this means that they must put their clients’ interests above their own.

For the most part, registered investment advisors are governed by fiduciary standards, which are based on the Investment Advisers Act of 1940, as well as common law, various regulatory rulings, and other statutes. 

These rules, affirmed in a 1963 Supreme Court ruling (SEC vs. Capital Gains Research Bureau), were updated with new interpretation in June of 2019. 

A comprehensive list of fiduciary duties is not explicitly spelled out by law. However, there are several generally held provisions that advisors must follow to comply with fiduciary standards:

  • Exercise due care when assessing a client’s needs and offering advice.
  • Serve the best interests of clients ahead of your own.
  • Make full and fair disclosure of any potential conflicts, and ensure those conflicts do not taint their advice.
  • Act and provide advice based on client objectives.
  • Seek the best execution of trades.
  • Follow the instructions or guidelines provided by the client.

The Institute for the Fiduciary Standard goes further by cautioning against accepting gifts and warning advisors not to charge unreasonable fees. 

The Institute also calls for advisors to provide written rationalizations for all of their advice and investment decisions. Plus, they need to keep their professional knowledge up to date. 

In explaining the fiduciary standard, the Securities and Exchange Commission states that “You owe your clients a duty of undivided loyalty and utmost good faith. You should not engage in any activity in conflict with the interest of any client, and you should take steps reasonably necessary to fulfill your obligations. You must employ reasonable care to avoid misleading clients, and you must provide full and fair disclosure of all material facts to your clients and prospective clients.”

Fiduciary vs Suitability

For some financial professionals, there is a second and less stringent set of standards they must meet. For example, brokers are only required to fulfill the “suitability standard,” which only calls for them to reasonably believe they are doing the right thing for their clients. 

They do not necessarily have to advise clients to find the best product available for their needs, but can instead find one that is merely “suitable.”

Those who follow the suitability standard do not need to disclose all conflicts of interest. And the suitability standard is less strict about placing client interests above their own. The suitability standard is also less strict about ensuring the advisor has fully researched your financial situation before providing advice. 

Often, advisors and brokers who follow the suitability standard work for mutual fund managers and other investment companies. In many cases, they will encourage clients to invest only in their company’s products and will receive a commission from the sale. 

Those advisors who follow the fiduciary standard are more likely to be independent operators and are paid based on a percentage of their assets under management, as opposed to a commission from sales. 

These advisors are also known as “fee-only” or “fee-based” advisors. In general, fee-based advisors are more likely to comply with the fiduciary standard because they do not work for or represent investment companies. So they are less likely to have a conflict of interest. 

The SEC in 1999 said that fee-based programs benefit customers by “better aligning” the advisors and brokers with the needs of clients. 

It is possible for an advisor to follow the fiduciary standard in some cases and the suitability standard in others. This can be the case when an advisor accepts fees for advice while buying and selling investments based on commission. 

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What a Fiduciary Financial Advisor Can Do

A fiduciary financial advisor can perform a wide range of duties to assist you in managing your money and investments.

  • Provide general financial advice
  • Recommend stocks, bonds, mutual funds and other investments
  • Manage your investment portfolio. 
  • Provide broader financial planning, including retirement planning and the setting up of trusts. 
  • If properly certified, trade stocks and other investments on your behalf. (In this case, they may work with a separate broker to execute trades. If they wish to execute trades themselves, the advisor must be a registered Broker-dealer.)
  • Perform tax returns and provide tax planning advice.
  • Recommend insurance products 

What a Fiduciary Financial Advisor Can’t Do

If a registered advisor is committed to following the fiduciary standard, they should not engage in certain behaviors. 

These include: 

  • Operating with a conflict of interest and not disclosing it. For example, the advisor should not recommend a product that he will personally profit from. If he does endorse such a product, he should at the very least explain the potential conflict to the client. 
  • Selling a product from which they will personally profit. Independent, fee-only advisors who follow the fiduciary standard will generally make their money from a percentage of assets under management, not commissions from sales. 
  • Providing advice that is not appropriate for the investor. The advisor must understand the client’s investment needs and risk tolerances, and guide them toward investments that make sense for them. For example, an advisor acting in good faith would never recommend that an older retiree purchase a risky stock product. 
  • Acting negligently. Negligence is somewhat hard to prove, but you know it when you see it. For example, let’s say an advisor is charged with managing an investor’s money but goes months without paying attention to their accounts. If this behavior results in significant losses for their client, they could be considered negligent. 
  • Making excessive trades, also known as churning. 
  • Making unauthorized trades. If your advisor purchased shares of stock, for example, without receiving guidance from you, that’s a violation of trust and the fiduciary standard. 
  • Committing fraud. This is a no-brainer. The advisor should never lie about their credentials or otherwise misrepresent who they are. 

Certifications and Qualifications

A fiduciary is often certified or licensed, after passing specific coursework or exams administered by the Financial Industry Regulatory Authority (FINRA) or other groups.

These certifications or licenses are designed to be challenging to obtain, thus giving clients a basic level of comfort with an advisor’s qualifications.

Licenses and designations can include:

Series 63 – This is the Uniform Securities Agent State Law Examination, a state law test to become a broker-dealer. Applicants must answer 60 questions and get 43 correct within 75-minutes.

Series 65– The is also known as the North American Securities Administrators Association Investment Advisers Law Examination. The 180-minute exam features 130 questions, and candidates must get 94 correct.

Series 66 – Those who take and pass this test will qualify as if they passed both the 63 and 65 series exams. The exam consists of 100 questions and ten pre-test questions, to be answered in 100 minutes.

Certified Financial Planner – The CFP designation requires applicants to complete college-level coursework requirements, followed by a six-hour exam.

Chartered Financial AnalystA CFA may not necessarily work as an advisor, but can. The CFA exam is notoriously difficult, with three levels and a pass rate of between 40-45% for the first two levels and about 55% for the third. 

Certified Public Accountant –  A CPA can serve as an advisor, and is usually required to follow the fiduciary standard on tax-related items and managing assets. The CPA exam consists of four, four-hour sessions. 

It should be noted that lawyers have a fiduciary duty and can be considered fiduciary financial advisors if they are assisting you in financial matters, such as estate planning.

How to Find a Fiduciary Financial Advisor

Not all financial advisors are fiduciaries. Any person can, in theory, claim to be a financial advisor, but they would not automatically be bound to the fiduciary rule. 

Investment advisors who are registered with the SEC or a state securities regulator must follow the fiduciary standard. You can find information about these advisors on the SEC or state regulator website.

The National Association of Personal Financial Advisors has an online search tool directing you to fee-only advisors, who must follow the fiduciary standard. Other resources include the Certified Financial Planners Board and Garrett Financial Network

Once you find an advisor, you can vet them by asking a variety of questions, including: 

  • What are your certifications?
  • How long have you been in business?
  • How do you earn your money? Do you collect a fee based on assets under management, or do you receive a commission from investment companies?
  • What are my total costs for working with you?
  • Are you willing to provide a written guarantee of fiduciary duty?
  • Can you explain your due diligence process when evaluating an investment?
  • Can you put me in touch with any of your other clients?
  • Do you have an investment custodian? If so, which one?

If you question whether your advisor is acting in your best interests and following the fiduciary rule, you can ask them to sign an oath produced by The Committee for the Fiduciary Standard

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Possible Changes to Fiduciaries and the Law

The regulations regarding fiduciary standards are continually up for debate and tweaking. After the financial crisis of 2008, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 initially called for the expansion of accounts that would fall under the fiduciary standard. The goal was to avoid confusion among investors who may have been getting conflicting advice. 

The rule specifically called for all professionals who worked on retirement plans to be elevated to the role of fiduciary. It was to be phased in between 2017 and 2019. 

But it was delayed because the Trump administration opposed the measure, arguing that it would inadvertently reduce the amount of advice investors could access. There are indications it may be put in place later in 2019, and the SEC passed some rulemaking changes of its own.

The “Regulation Best Interest” package is designed to strengthen protections for investors by requiring broker-dealers to disclose conflicts of interest. Critics argue that these new rules still stop short of creating a uniform set of rules based on the fiduciary standard. 

What to Do if Fiduciary Standard is Violated

Unfortunately, there will be cases when a financial advisor fails to follow a fiduciary standard. When this happens, you may be able to seek remedies. 

Depending on the role of the advisor, you may be able to seek remedies through the Financial Industry Regulatory Authority (FINRA). FINRA recommends that disputes between investors and brokers go through a mediation process, in which a third party recommends how to settle a case. 

If mediation does not resolve the dispute, the parties can pursue arbitration, in which the third party hears evidence and issues a binding ruling. Mediation and arbitration are generally seen as faster and cheaper than litigation in court. 

According to FINRA, there was an average of 2,000 disputes filed with FINRA for breach of fiduciary duty each year between 2015 and 2018. 

If you work with a registered financial advisor, you have likely both signed an agreement with an arbitration clause. This means that you are expected to pursue arbitration to resolve a dispute rather than litigation in court. However, if there is no arbitration agreement—or your advisor is not registered—you may be able to sue. 

To prevail in a case involving a potential breach of fiduciary duty, you must show negligence, fraud, or unsuitability on the part of the advisor. Solely losing money on an investment, for example, is not enough to prove a breach. 


A financial advisor can be a great ally in your quest to achieve financial freedom. An experienced, properly educated advisor can help you with a variety of money matters ranging from investment management, estate planning, taxes and more. 

Working with an advisor who follows the fiduciary standard of care means that they are likely registered with the SEC or a state regulatory agency. It is their obligation to keep your financial interests above theirs. 

A fiduciary financial advisor also must avoid conflicts of interest and provide advice that is appropriate for you and your goals. Plus, if you hire a fiduciary financial advisor and have a bad experience, you may be able to seek remedies that wouldn’t otherwise be available to you. 

You deserve an advisor who can provide a high standard of care, and the fiduciary standard is in place to ensure you receive it.  

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