Jordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Written By Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Jordan Tarver Lead Editor, Mortgages & LoansJordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top perf.
Lead Editor, Mortgages & Loans Rae Hartley Beck Deputy Editor of Investing and RetirementRae Hartley Beck first started writing about personal finance in 2011 with a regular column in her college newspaper as a staff writer. Since then she has become a leader in the Financial Independence, Retire Early (FIRE) movement and has over 300 by.
Rae Hartley Beck Deputy Editor of Investing and RetirementRae Hartley Beck first started writing about personal finance in 2011 with a regular column in her college newspaper as a staff writer. Since then she has become a leader in the Financial Independence, Retire Early (FIRE) movement and has over 300 by.
Rae Hartley Beck Deputy Editor of Investing and RetirementRae Hartley Beck first started writing about personal finance in 2011 with a regular column in her college newspaper as a staff writer. Since then she has become a leader in the Financial Independence, Retire Early (FIRE) movement and has over 300 by.
Rae Hartley Beck Deputy Editor of Investing and RetirementRae Hartley Beck first started writing about personal finance in 2011 with a regular column in her college newspaper as a staff writer. Since then she has become a leader in the Financial Independence, Retire Early (FIRE) movement and has over 300 by.
| Deputy Editor of Investing and Retirement
Updated: Jun 8, 2023, 12:25pm
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
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Working with a financial advisor is a big decision. If you don’t work with a fiduciary, you may end up in a difficult financial situation, or worse—have your money mismanaged or even stolen.
Although anyone who offers financial advice can call themselves a financial advisor, there’s a specific group of professionals that are required by law to offer financial advice and product recommendations that are in their clients’ best interests. These professionals, referred to as fiduciaries or fiduciary financial advisors, are key to knowing that your money and financial decisions are being guided in a responsible manner.
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A fiduciary refers to a professional that is required by law to act in their clients’ best interest. The professionals usually manage assets, such as an investment portfolio or property, for their clients. These professionals can range from financial advisors to lawyers, estate executors and real estate agents.
Because fiduciaries work in their clients’ best interests, they can only recommend financial strategies that fully benefit a specific client’s economic situation. Fiduciaries are also required to avoid and disclose any conflicts of interest to their clients, such as profiting at a client’s expense.
Fiduciaries have two main duties while managing money:
A fiduciary advisor is a financial professional who is legally and ethically bound to act in the interests of their clients. Fiduciary advisors must prioritize the needs of their clients above their own needs.
This means that they are supposed to recommend investments and products based solely on your needs, not what will net them the greatest commission, referral kickback or fees. Fiduciary advisors are legally obligated to disclose any potential conflicts of interest they may have.
You might think that allowing someone to manage your money automatically means they’re a fiduciary—but not all financial advisors fall under this standard of care.
Only fiduciary financial advisors are required to place your best interest over theirs. Fiduciary financial advisors typically work for Registered Investment Advisors (RIAs). They can also be certified financial planners (CFPs), but you should always double-check before working with one.
The financial advisors who work for brokerage firms aren’t typically fiduciaries. These professionals instead are required to work under the legal bounds of the suitability standard. Under this standard, these advisors are required to give advice and product recommendations that are only suitable for you, meaning they may have high fees or offer the advisor a large commission.
The rise of robo-advisors has made financial planning cheaper and widely accessible to consumers. A robo-advisor refers to an automated software system that uses algorithms to build and manage a portfolio for you. Additionally, many robo-advisors are registered as advisors with the Securities and Exchange Commission (SEC) which means they have a fiduciary duty to their clients.
However, since robo-advisors are automated systems, some financial professionals argue that they’re unable to be considered fiduciaries. They’re unable to create custom financial plans based on a customer’s unique personal situation, so it can be hard to determine if they’re recommending the best possible investment plan or products. You should keep these caveats in mind if you opt to use a robo-advisor.
There are consequences if a fiduciary breaches their duty of acting in their clients’ best interest. This can mean the advisor did something as severe as trading investments without their client’s authorization or something as simple as failing to disclose any conflicts of interest associated with investments. Breaches can also come from making excessive trades from a client account to earn commissions or even using money in a client’s account to buy securities for themselves.
If you think your financial advisor breached their fiduciary duty, you’ll want to end the relationship immediately. If you experienced damages due to the breach of fiduciary duty, you may be able to file a civil claim to recoup those damages. Filing a claim will require proof that your advisor is a fiduciary, they breached their duty of care and you incurred damages due to the breach.
If your claim is successful, you may be awarded damages. The advisor will face disciplinary action, such as being ordered to pay a fine. They will also have disciplinary action added to their record, which can damage their reputation and career. You can review a fiduciary financial advisor’s disciplinary action through BrokerCheck.
Now that you understand the importance of working with a fiduciary financial advisor, you may want to start working with one as soon as you can. Finding one near you can be simplified by using one of the many available databases.
Many financial planning associations offer databases of financial advisors, free of charge, including:
If you find a financial advisor you’re interested in working with, ask if they are a fiduciary and if they are always acting as a fiduciary (some fee-based advisors don’t act as fiduciaries while selling commission-based products).
It’s also important to understand how the financial advisor will make money. Most fiduciary financial advisors are fee-only or fee-based, meaning they may charge by the hour, by the plan or through a subscription model.
The easiest way to find out if your financial advisor is a fiduciary is to ask them. You can also use FINRA’s BrokerCheck database to look up your advisor and verify that they are registered with the SEC. An additional way to verify an advisor’s fiduciary status is to review the disclosure forms they are required to give you.
When choosing an advisor, looking for someone with credentials can help verify that you’re working with someone who has undergone extensive training, passed thorough examinations and belongs to an organization that requires them to adhere to professional standards. In addition to being a fiduciary, look for designations like Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Personal Financial Specialist (PFS) and membership in organizations like the National Association of Personal Financial Advisors (NAPFA).