You may have heard the term “fiduciary” regarding financial advisors. It sounds impressive, right? But really, what is a fiduciary, why is it important, and do you need one?
In short, when a financial advisor is a fiduciary, it means they must always act in your best interest when they are managing your accounts, not theirs. While this may seem like a no-brainer, it’s a distinction that can make a positive difference to your financial future.
Financial professionals follow two main standards: the suitability standard and the fiduciary standard. Understanding the difference between these standards can help you protect your money and reach your financial goals.
What is a fiduciary financial advisor?
Think of a fiduciary as your financial champion. They’re legally required to put your interests above their own. They must avoid conflicts of interest and tell you if any potential conflicts exist.
Fiduciaries are required to recommend options they believe are truly best for your specific situation. It should not just be something that might work, but what should work best for you.
Investment Advisor Representatives (IARs) follow this fiduciary standard. They’re regulated by the SEC or state regulators, depending on how much money they manage.
The suitability standard:
Now, let’s talk about non-fiduciaries. These advisors only need to recommend products that are “suitable” for you. Sounds okay, right? But here’s the catch. “Suitable” doesn’t mean “best.” It means it meets some basic requirements.
These advisors can recommend products that earn them commissions. They can recommend their company’s own products. And they can have conflicts of interest that might not be obvious to you.
Broker-dealers are typically subject to Regulation Best Interest and are overseen by FINRA, which establishes standards for how recommendations must be made in a client’s best interest at the time of the recommendation.
A bit of history and recent changes
The fiduciary standard has been around since 1940. Meanwhile, broker-dealers have historically followed the looser suitability standard. Then, in 2019, the SEC created “Regulation Best Interest” (Reg BI) to make brokers more client-focused.
But make no mistake – there are still significant differences. One major one? Fiduciaries must file a Form ADV. This public document tells you how they make their money, their investment strategies, and whether they’ve ever had complaints filed against them, regulatory fines levied, or legal problems.
Fiduciary vs. suitability: The key differences
Let’s break it down simply:
Fiduciaries must legally put your interests first. Brokers simply need to meet a “best interest” requirement. Fiduciaries typically charge straightforward fees based on the services they provide. Brokers often make money from commissions on what they sell you.
Fiduciaries must tell you everything important about their recommendations. Your specific goals drive a fiduciary’s advice. A broker’s advice might be influenced by which products pay them more. Different watchdogs oversee these advisors, too – fiduciaries answer to the SEC or state agencies, while brokers answer to FINRA, which has different standards.
Don’t be fooled by fancy titles
A surprise for many people is that not all financial advisors are fiduciaries. Anyone can call themselves a financial advisor. Also, titles like financial consultant, wealth manager, or investment advisor don’t automatically mean someone is a fiduciary either.
Some professionals wear two hats – they can switch between being a broker and a fiduciary. Confusing, right? The account type you have often determines which rules they follow with you. That’s why asking direct questions is so important.
Why should you care about the fiduciary standard?
You work hard for your money. It’s important to understand the standards that guide the advice you receive. Fiduciaries are required to act in your best interest when serving in that capacity and often focus on building long-term client relationships. These relationships may support more personalized planning, greater transparency, and clearer communication.
The differences can appear in real-world situations. For example, a fiduciary might recommend low-cost index funds that align with your goals, while other advisors may recommend products that are appropriate for your situation but differ in structure or compensation.
A fiduciary typically designs strategies around your specific needs. Other advisors may offer recommendations based on a range of available products and solutions.
Fiduciaries often use straightforward fee structures. Other advisors may use commission-based or other compensation arrangements, which can vary depending on the recommendation.
How Allegiant Wealth Strategies puts you first
At Allegiant Wealth Strategies, our investment advisory services operate under the fiduciary standard. That’s not just a marketing claim – it’s a legal obligation. When you work with our advisors in this capacity, recommendations are required to be made in your best interest based on your individual circumstances.
We believe in being open and honest. We explain things clearly, answer all your questions, and build personalized plans that fit your unique situation. Our goal is to help you feel confident about your financial future, knowing we have your back, always.
How to spot a fiduciary
Want to know if your advisor is a fiduciary? Just ask. If they don’t give you a straight answer, that’s a red flag. Ask them to put it in writing.
Don’t just trust titles. Check if they’re a CERTIFIED FINANCIAL PLANNER® professional, as CFPs must act as fiduciaries. You can also review their Form ADV filing with the SEC or state regulator.
Ask pointed questions about how they get paid, if they get paid for recommendations, and what conflicts of interest might affect their advice. A true fiduciary will give you straight answers.
The bottom line: Whose interests come first?
When it comes to your financial future, the difference between “suitable” and “best” can have a meaningful impact over time. That money could help fund your retirement, your kids’ education, or whatever dreams you’re saving for.
At Allegiant Wealth Strategies, we don’t just offer guidance – we offer accountability, transparency, and trust. Contact us today for a no-cost consultation. Please contact us here https://tinyurl.com/mryzcey6 or call (269) 218-2100.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer. This material is for informational purposes only and should not be construed as a recommendation to buy or sell any securities or adopt any investment strategy. Not all financial professionals are fiduciaries at all times. Whether a financial professional is acting as a fiduciary depends on the capacity in which they are acting. All investing involves risk, including the possible loss of principal. There is no guarantee that any investment strategy will be successful.
Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.