What Is a Fiduciary Advisor?
When working with a financial advisor, it’s crucial to know if that advisor is a fiduciary. Doing so can give you a better understanding of whether that professional might have conflicts of interest and whether they will give you financial advice that benefits you first and foremost.
A fiduciary advisor is one that must uphold the fiduciary standard, meaning they are legally obligated to act in the client’s best interest rather than their own, their employer’s, or any other person or company. Fiduciaries minimize potential conflicts of interest because even if certain investment options would benefit them more than clients, they are legally required to recommend the best option for clients.
In contrast, advisors that are not fiduciaries do not have to act in a client’s best interest. Some follow the much vaguer “suitability standard,” where investment recommendations must be deemed suitable for the client. However, just because they are suitable does not mean they are the best option.
Even broker-dealers registered with the Financial Industry Regulatory Authority (FINRA) must follow the suitability standard only, and it doesn’t matter if the advisor acts in their own best interest as long as the recommendation is still suitable. That means an advisor working on commission may recommend a retirement product that is “suitable” for you without telling you about the options that would have been better for you but would not have earned them a commission.
In recent years, the Department of Labor created a fiduciary rule that would have required all advisors to act as fiduciaries for retirement accounts, but that law was overturned by a court in 2018 and has essentially been shelved. As such, it’s important to not assume that an advisor is acting as a fiduciary, and you should look for one that acts as a fiduciary on all aspects of their relationship with you.
The best way to be sure whether an advisor is a fiduciary is to simply ask. The advisor must disclose whether they are a fiduciary, and then you can decide for yourself whether you’d like to work with that advisor.
Schedule a complimentary, 15-minute call with a fiduciary, fee-only financial advisor today to discuss your personal situation.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country's leading professional association of fee-only financial advisors.