What Is a Fiduciary — And Why Should You Care
A fiduciary is legally required to act in your best interest. That sounds like it should be the default for anyone giving financial advice, but it isn’t. Many advisors operate under a lower bar called the suitability standard, which basically means they need to recommend something that fits your general situation — not necessarily the best option available. The difference matters more than most people realize, especially when the stakes involve retirement savings or major financial decisions.
Fiduciary vs Suitability: The Distinction That Costs People Money
Under the suitability standard, an advisor can recommend a mutual fund with a 1.2% expense ratio when a virtually identical index fund charges 0.03%. Both are “suitable” for your situation. Only one is actually in your best interest. Fiduciaries have to recommend that cheaper option — or explain why the more expensive one genuinely serves you better. I’ve seen clients come in after years with a suitability-standard advisor, paying fees they didn’t know existed on products that weren’t the best fit. The math on those unnecessary costs over a decade is painful.
Who Actually Acts as a Fiduciary
Registered Investment Advisors — RIAs — are required by law to act as fiduciaries. Fee-only advisors typically operate as RIAs, which is part of why the fee-only model has gained traction. Broker-dealers and their representatives generally follow the suitability standard, though the regulatory picture keeps shifting. The SEC’s Regulation Best Interest (Reg BI) raised the bar for brokers somewhat, but it’s still not the same as a full fiduciary obligation. The distinction gets muddy, which is exactly why you need to ask directly.
How to Verify Fiduciary Status
Ask this exact question: “Will you act as a fiduciary for me at all times, on every service you provide?” Then get the answer in writing. That second part matters because some advisors wear two hats — they act as fiduciaries when managing investments but switch to the suitability standard when selling insurance products or annuities. If you don’t pin down exactly when the fiduciary duty applies, you might assume you’re protected during a conversation where you’re actually just a sales prospect.
Why This Actually Matters for Your Money
Fiduciary advisors must disclose conflicts of interest. They can’t quietly steer you toward a product that pays them a higher commission when a lower-cost alternative would serve you better. This protection is most valuable during major decisions — rolling over a 401(k), choosing between annuities, deciding how to handle a lump sum from a home sale or inheritance. Those are the moments when bad advice costs real money, and a fiduciary standard is your strongest safeguard against it.
Red Flags That an Advisor Isn’t Putting You First
If an advisor dodges the fiduciary question, that’s your answer. Other warning signs: heavy emphasis on proprietary products (funds managed by their own firm), reluctance to discuss fees in plain dollar terms, and high-pressure urgency around decisions that don’t actually have deadlines. Genuine fiduciary relationships feel like working with someone who’s on your side. If it feels like a sales pitch, it probably is one.
