What is a Fiduciary Financial Advisor?

Perhaps you have read about a new Department of Labor regulation that mandates anyone who provides financial advice and services for retirement assets must be a fiduciary financial advisor.

Retirement assets include qualified plans (401ks) and IRAs.

What does this mean and how does it impact you?


According to Wikipedia, a fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person.

Financial Advisor

A financial advisor is a person or firm that is registered as a Registered Investment Advisor (firm) or Investment Advisor Representative (professional). This registration enables them to provide financial advice and services for fees.

A financial advisor who holds one of these registrations is a fiduciary.

Salesmen who claim to be financial advisors do not hold this registration.

Ethical Standard

Fiduciary is the highest ethical standard in the financial service industry. Financial advisors, who are fiduciaries, are required to put their clients’ financial interests first.

Salesmen, who masquerade as financial advisors, are held to a lower ethical standard called suitability. They are supposed to make suitable recommendations, but this vague standard is very difficult to enforce.


Selecting a financial advisor who is a fiduciary should be a simple task, but it is riskier than you might think for these five reasons:

  1. This is a critically important financial decision
  2. Salesmen know how to convince you they are financial advisors
  3. Undocumented sales pitches may not be true
  4. Salesmen are paid to sell, not advise or provide ongoing services
  5. Salesmen do not have to put your financial interest first

How do people who sell financial products get away with it?

  • It is legal for salesmen to call themselves financial advisors
  • There are no mandatory disclosure requirements
  • There is very little public data
  • They use sales skills to convince people to buy what they are selling

In other words, it is your sole responsibility to ask the right questions and select real financial advisors.

Protect Your Interests

There are five easy rules that will help you select a fiduciary financial advisor.

#1. Obtain written acknowledgement that the advisor is acting in a fiduciary capacity when providing financial advice and services.

#2. Make sure the advisor is a Registered Investment Advisor or an Investment Advisor Representative. Ask for written verification.

#3. Make sure the advisor is compensated with one or more of the three types of fees: Hourly, fixed, or asset-based (% of assets).

#4. Make sure the advisor provides ongoing advice and services – for example performance measurement reports.

#5. Go to FINRA.org/BrokerCheck to verify the advisor’s licensing, registrations, and compliance record.

As stated in #1, get all of the information you require to make a selection decision in writing. When your future financial security is at stake, it pays to trust what you see and not what you hear. Verbal information is usually a sales pitch that is designed to impress you. Documented information is more reliable because you have a permanent record.

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