Are All Financial Advisors Fiduciaries? How to Tell

Many people assume all financial advisors are fiduciaries, but that is not always the case. Some follow a fiduciary standard, meaning they must act in the best interest of their clients at all times. Others follow a less stringent set of rules and standards known as Regulation Best Interest. Whether a financial advisor is a fiduciary depends on their licensing, business model and regulatory oversight.

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What Is a Fiduciary?

A fiduciary is someone who is legally obligated to act in the best interests of someone else. Fiduciary advisors must put the client’s needs first, avoid conflicts of interest and disclose any potential conflicts. These advisors must offer advice based solely on what benefits the client, not what generates commissions or benefits their firm.

Congress established the fiduciary standard through the Investment Advisers Act of 1940. Under this law, Registered Investment Advisors (RIAs) and their representatives must uphold fiduciary duties when offering investment advice. This means they must adhere to two primary obligations: the duty of loyalty and the duty of care.

The duty of loyalty requires transparency about potential conflicts and a commitment to act solely in the client’s interest. The duty of care involves making informed recommendations based on a thorough understanding of the client’s financial situation, goals and risk tolerance.

Who Qualifies as a Fiduciary?

When a financial advisor or advisory firm registers with the Securities and Exchange Commission (SEC) and becomes a registered investment advisor (RIA), they are subject to fiduciary duty. They must also follow fiduciary principles in all aspects of their client relationships. Credentials such as the Certified Financial Planner™ (CFP®) or accredited investment fiduciary (AIF) designations require adherence to fiduciary standards as part of the professional code of ethics, further reinforcing this obligation.

Fiduciaries vs. Other Advisors

A woman shakes hands with a client in her office.

Fiduciary financial advisors abide by a legal standard requiring them to act in a client’s best interest at all times. This includes avoiding conflicts of interest, offering transparent advice and basing all recommendations on the client’s specific needs and goals.

By contrast, broker-dealers and their representatives follow a different set of rules under Regulation Best Interest (Reg BI).

Implemented in June 2020, the SEC developed Reg BI to enhance consumer protections while maintaining a distinction between broker-dealers and fiduciary advisors. It requires brokers to act in the client’s best interest when making a recommendation. However, this applies only when giving a recommendation, not throughout the ongoing advisory relationship.

Reg BI also allows for commissions and proprietary product sales, as long as the advisor discloses and mitigates conflicts of interest.

Reg BI vs. Fiduciary Duty

The key difference lies in the scope and consistency of the obligation. Fiduciary advisors must uphold their duty continuously across all aspects of the client relationship.

Under Reg BI, the best interest standard applies only during specific transactions. In addition, fiduciaries legally must conduct a more thorough evaluation of a client’s situation. Brokers, on the other hand, may not be obligated to consider all available options or long-term implications.

Reg BI uses language similar to fiduciary principles, but doesn’t create the same legal obligation. Clients working with broker-dealers may still encounter recommendations influenced by compensation structures or limited product offerings—even if those products are considered suitable and in the client’s best interest at the time.

Who Can Call Themselves an Advisor?

Reg BI also introduced restrictions on the use of the term advisor or adviser. Under the rule, broker-dealers and their representatives are prohibited from using these titles unless they are also registered as investment advisors or provide advisory services subject to fiduciary standards.

This change was intended to reduce confusion among consumers who might otherwise assume all professionals using the term advisor adhere to fiduciary duty.

How to Tell If a Financial Advisor Is a Fiduciary

One of the most direct ways to find out if a financial advisor is a fiduciary is to ask them whether they are legally obligated to act in your best interest at all times.

Advisors registered with the SEC or a state as an RIA are required to follow a fiduciary standard. You can verify this by reviewing the advisor’s Form ADV, a public disclosure document available through the SEC’s Investment Adviser Public Disclosure (IAPD) database.

Advisors file Form ADV with the SEC or state regulators. This form outlines the advisor’s services, compensation, disciplinary history and whether they follow a fiduciary duty. You can access it for free through the SEC’s Investment Adviser Public Disclosure (IAPD) database.

It is also helpful to ask about the advisor’s compensation model. Fee-only advisors are typically fiduciaries who are paid directly by clients and do not earn commissions. However, some advisors are fee-based, meaning they may act as fiduciaries when providing financial planning or portfolio management services. They also sell investment or insurance products for a commission in their capacity as a broker or agent. In these cases, the fiduciary obligation may only apply to certain parts of the relationship.

Bottom Line

A couple meets with a financial advisor.

The term financial advisor covers a wide range of professionals, but not all of them are bound by the same legal obligations. While some advisors are required to act in a client’s best interest at all times, others may follow different standards, depending on the services they offer or how they are compensated. Understanding these distinctions helps clarify what to expect and how an advisor’s recommendations may be influenced.

Tips for Finding a Financial Advisor

Some advisors specialize in retirement planning, others focus on tax strategies, investing or estate planning. Knowing what you’re looking for helps narrow the field and match you with someone who fits your financial goals. Furthermore, a good advisor should be able to explain how they make recommendations, manage risk and tailor strategies to your individual circumstances.
Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.