When it comes to managing your finances, it’s crucial to work with an advisor who has your best interests at heart. This is where the distinction between fiduciary and non-fiduciary financial advisors comes into play. A fiduciary financial advisor is legally and ethically obligated to act in the best interests of their clients, while non-fiduciary advisors may have more flexibility in the financial products and services they recommend.

In this blog post, we’ll discuss what a fiduciary financial advisor is, what a non-fiduciary advisor is, and the key differences between the two, so you can make an informed decision when seeking professional financial guidance.

What Is a Fiduciary Financial Advisor?

A fiduciary financial advisor is a professional who is legally and ethically bound to act in the best interest of their clients. This means that they are required to provide advice and recommendations that are solely aimed at benefiting the client, and not themselves or their employer. Fiduciary advisors are held to a higher standard of care and must always prioritize their client's well-being over their own financial gain.

Fiduciary advisors are often registered with the Securities and Exchange Commission (SEC) or state regulatory agencies, and they are typically fee-based, meaning they are compensated through a straightforward fee structure rather than through commissions or other incentives. This fee-based model helps to ensure that fiduciary advisors remain unbiased in their recommendations and are not swayed by financial incentives from third-party investment products.

Understanding Non-Fiduciary Advisors

Non-fiduciary advisors, unlike fiduciary advisors, are not legally bound to act in their client’s best interest. Instead, they are only required to offer suitable recommendations based on their clients’ financial situation and goals. This means they may recommend products or services that may not be the best option for the client but still fall within the realm of suitability. Non-fiduciary advisors may also have conflicts of interest, such as receiving commissions or incentives for recommending certain products, which could potentially impact the advice they provide to their clients.

Non-fiduciary advisors are held to a lower standard of care compared to fiduciary advisors, which means they are not required to disclose potential conflicts of interest or ensure that the client’s best interests are always put first. Clients need to understand the differences between fiduciary and non-fiduciary advisors to make informed decisions when seeking financial guidance.

The Key Differences Between Fiduciary and Non-Fiduciary Advisors

Fiduciary financial advisors are legally obligated to act in their client's best interests at all times. This means that they must provide advice and recommendations that are solely focused on what is best for their clients, even if it means potentially making less money for themselves. Non-fiduciary advisors, on the other hand, are only required to ensure that their financial advice and recommendations are suitable for their clients, based on their financial situation and goals. This opens the door for non-fiduciary advisors to recommend products and services that may not be in the best interest of their clients but are still deemed suitable.

Another key difference between fiduciary and non-fiduciary advisors is their compensation structure. Fiduciary advisors typically charge a fee for their services, which can be either a flat fee, an hourly rate, or a percentage of assets under management. This compensation structure removes any potential conflicts of interest and ensures that the advisor is truly working in the best interest of their clients. Non-fiduciary advisors may receive commissions or other forms of compensation for the products and services they recommend, potentially creating a conflict of interest and influencing their advice.

Reach Out to Pinnacle Pension Consultants!

Pinnacle created the Simplify Retirement program because employees are overwhelmed by the amount of information they receive. We help employees maximize their retirement plans and offer education and communications programs to deliver high-quality information.

Feel free to call us at 617-980-6346 or fill out the form on our website to learn more!