Do you work with a fiduciary financial adviser? Should you? Many people do not know what it means to work with a fiduciary financial adviser. If you have ever felt unsure whether your financial advisor truly has your best interests at heart, you are not alone. Many people assume all advisers act as fiduciaries when, in reality, that’s not always the case.
For many individuals, working with a financial professional can prove beneficial. Especially if one lacks the knowledge, interest, and/or time (collectively, “KIT”), to manage his or her financial life on his or her own. However, if you want to work with a financial adviser, deciding who to work with is hard. After all, it can be difficult to find someone with the right qualifications and experience. Plus, you should strive to find someone you are comfortable working with on both a personal and professional level.
Different types of professionals are held to different standards when it comes to providing advice or recommending products or investments. This makes it harder to decide who to work with. The related regulations remain in flux, complicating matters even more. Credentials also vary from individual to individual and firm to firm.
The SEC’s Top Tips for Selecting a Financial Professional represents a good guide. Read on for more helpful information.
This blog was originally published in April 2019 and updated in February 2025.
An Example of the Benefits of Working with a Fiduciary Financial Adviser
One of Apprise’s first clients was working with a broker before they started working with Apprise. They didn’t think they were paying anything. In reality, they were paying far too much. The average expense ratio of the mutual funds they were invested in was close to two percent. They paid front-end loads (basically commissions to purchase) of as much as five percent for some funds. They paid 12b-1 marketing fees (these go directly to the broker) of as much as one percent. Working with a fiduciary financial adviser allowed them to eliminate these fees and lower the expense ratios for their holdings. The result? More money stays in their portfolio, and they have greater confidence in their financial future.
The Fiduciary Standard
At a minimum, it would be prudent to work with a financial adviser regulated by the SEC. For decades, such individuals have been held to a fiduciary standard. Fiduciaries are required to put their client’s best interests ahead of their own. This requirement’s roots go back to the stock market’s crash of 1929 and the Depression that followed, as Congress, in part, blamed the crash on abuses in the securities industry.
The rules are laid out in the Investment Company Act of 1940 (The 40 Act). The 40 Act was created to establish and integrate a more stable financial market regulatory framework following the market crash. It was preceded by the Securities Act of 1933, which focused on greater transparency for investors. The 40 Act focuses primarily on the regulatory framework for retail investment products. These rules were established to try and crack down on much of the investment advising abuses that occurred during the booming 1920s. These rules were instituted to create a distinction between salespeople who were brokers, and those who formally provided ongoing investment advice for compensation.
Suitability
On the other hand, the Financial Industry Regulatory Authority (FINRA), the securities industry’s self-regulatory body regulates brokers. Brokers must provide what the agency characterizes as “suitable” investment advice. Unlike fiduciary advisers, brokers only need to recommend investments that are ‘suitable’—even if they come with higher fees or commissions that benefit them more than you.
Dual Registration
Things get even trickier if you consider that some financial professionals can be dually registered. Others may have professional designations trumping the required regulatory standards. For example, a dual-registered advisor operates as a fiduciary (when acting as a Registered Investment Advisor) and a broker (when selling commission-based products). While this might seem beneficial, the inherent conflicts of interest in this structure can negatively impact investors in several ways.
- Lack of clear fiduciary commitment: A dual-registered advisor can legally switch between fiduciary and commission-based roles—meaning they might act in your best interest at one moment, and prioritize their commission in the next without you even realizing it.
- Commission-driven advice: They may sell higher-cost, commission-based products that might not be the best fit.
- Potential for self-dealing: They can charge an advisory fee while still earning commissions on product sales.
- Hidden fees and higher costs: They may suggest higher-cost mutual funds that pay them commissions.
- Misleading titles and lack of transparency: They may market themselves as fiduciaries, which can cause confusion.
What About an Advisor’s Title?
Unfortunately, titles have changed over the years. Most brokers are no longer called brokers. Instead, they have titles that imply more trust such as Financial Advisor, Wealth Manager, Financial Coach, Comprehensive Wealth Manager,” or Vice President. Those who achieve great success may even be referred to as Managing Directors. (The SEC provides some guidance on evaluating financial titles here.)
However, the firms for which these individuals work, typically refer to them as something more closely associated with their activities: Producers.
Producers strive to maximize the sales revenue they generate for their firm. “Managing Directors” generate significant revenues and focus on maximizing the revenue they produce compared to the time they spend with clients.
Working in a brokerage firm does not mean the person giving the advice is not a good person. There may be individuals working inside these organizations who view their role as a trusted advisor. The issue is that it is hard to imagine how a fiduciary relationship can exist inside of or next to a broker-dealer business model. The two are incompatible.
The Role of an Investment Professional’s Place of Employment
Advisers held to a fiduciary standard must choose investments in their client’s best interests. However, what investments or products an advisor picks can change depending on where they work.
For example, stand-alone Registered Investment Advisers such as Apprise Wealth Management have no connection to a bank or brokerage. This typically leaves them with access to the entire investment universe, including the cheapest index funds/ETFs. Sometimes, but not always, brokers at firms associated with banks have similar access. However, because some firms have house funds and lucrative partnerships with fund companies, their brokers are often left with more limited menus of investment choices from which to choose.
How This Can Affect You
Let’s review an example showing how this might impact you.
Adviser A, who operates as a fiduciary financial adviser, wants to allocate 20% of your portfolio to an S&P 500 Index Fund or ETF. As you can see here, you can pay as little as three basis points (0.015%) when investing in an S&P 500 Index Fund. It is expected that someone operating under the fiduciary standard would choose one of these low-cost funds or another fund with similar characteristics for the investment.
On the other hand, Broker B, who operates under the suitability standard, could place your investment in what may be the worst index fund in the world instead.
How can that be?
The Rydex S&P 500 Fund – Class C (RYSYX), marketed by Guggenheim Investments, pays the salesperson for placing your investment in that fund. The charges on these Class C shares include a 0.75 percent management fee (for an S&P 500 Index Fund!!), a maximum 1.00% 12b-1 fee (the marketing or distribution fee that compensates advisors for selling the fund), and a deferred sales load (another bonus for the seller that may or may not be collected based on how long you hold the fund.) Total annual expenses are currently 2.38% (This information is also summarized on Morningstar’s website.) (For a more detailed description of the types of fees you can pay and fee transparency, in general, please see this blog post.)
In case you are wondering, there are investors in RYSYX. According to Morningstar, the fund’s net assets currently approach $240 million.
In both cases, allocating some of your portfolio to an S&P 500 Index fund is right for the investor. However, it could cost a lot more if the person making the recommendation is following the suitability standard. In fact, when it proposed the fiduciary rule, the White House’s Council of Economic Advisors estimated that fees and payments associated with conflicted financial advice cost working and middle-class families roughly $17 billion annually. Paying such expenses (often unknowingly) will result in your portfolio generating lower returns than a comparable portfolio with lower fees.
Other Examples
Whistleblowers at Wells Fargo Wealth Management reported the difficulties sales incentives created between the firm’s high-net-worth clients and their brokers. An article in the Wall Street Journal highlighted a few of them:
Wells Fargo financial advisers pushed clients into products that generated additional fees and often moved client assets between different products or investing platforms to generate more revenue and bigger bonuses.
Advisers frequently targeted wealthy clients in Wells Fargo’s private bank, sometimes steering them into alternative investment funds of which Wells Fargo was the majority owner—allowing the San Francisco bank to collect another helping of fees.
Advisers across the wealth management business sometimes shifted client assets between products such as certificates of deposit and structured notes or put clients into products that earned the bank higher fees.
For years, managers pressured advisers to funnel clients with assets of more than $2 million into a higher-fee platform known as Investment Fiduciary Services.
Wells Fargo often mandated client quotas for riskier alternative investments, such as private equity and hedge funds, regardless of whether they were appropriate.
While the products, services, and sales incentives may be different, these types of practices are likely happening at countless brokerage firms across the country.
The Best Interest Rule and the Fiduciary Rule
On several occasions over the last few years, the U.S. Department of Labor (DOL) and the Securities and Exchange Commission (SEC) have proposed legislation the way financial advisors should treat their clients. Let’s look at the latest developments related to the Best Interest Rule and the Fiduciary Rule and the steps being taken to protect your hard-earned retirement savings.
The Fiduciary Rule: What’s the Latest?
Back in April 2024, the DOL rolled out the “Retirement Security Rule.” This rule aimed to broaden the definition of who counts as a fiduciary under the Employee Retirement Income Security Act (ERISA). In simple terms, it meant more financial pros giving retirement advice would be legally bound to act in your best interest. The rule was set to take effect on September 23, 2024, with a one-year phase-in for some parts.
But the rule failed to take effect. In August 2024, two federal courts in Texas hit the pause button on this rule. They issued stays, meaning the rule’s rollout is on hold until the legal dust settles. So, for now, the old 1975 five-part test for defining fiduciary advice is still the law of the land.
Best Interest Rule: What’s It’s Status?
While the DOL’s Fiduciary Rule is in limbo, the Securities and Exchange Commission’s (SEC) Regulation Best Interest (Reg BI) is alive and kicking. Since June 30, 2020, Reg BI requires broker-dealers to act in the best interest of retail customers when making investment recommendations. This means they cannot put their own financial gains ahead of yours.
What This Means for You
With all these legal twists and turns, it’s more important than ever to stay informed. Here’s what you can do:
Ask Questions: Don’t hesitate to ask your financial advisor if they’re acting as a fiduciary. This means they’re legally obligated to put your interests first.
Do Your Homework: Research your advisor’s—or your potential adviser’s—background and the firm they represent. Make sure they’re reputable and have your best interests at heart.
Review Your Accounts: Take a close look at your 401(k) and IRA statements. Be aware of any fees you are paying and understand how they impact your savings.
Remember, it’s your money and your future. Staying informed and asking the right questions can help ensure you are on the path to a secure retirement.
How Did This Happen?
Over time, the number of employer-funded pension plans has fallen as companies have switched their retirement benefits from defined benefit plans to defined contribution plans. While this makes it easier for companies to manage the cost of providing retirement benefits to their employees, it makes it harder for Americans to save and plan for their retirement.
Unfortunately, our schools do not provide much in the way of financial education. People have been put in charge of their retirement without fully understanding the consequences of their actions.
Brokers no longer serve as order takers for stocks and bonds. Their customers desire different products and services. Brokers now create financial plans and place client money into “fee-based” accounts. It sounds like advice.
Unfortunately, it is not.
Fees and “Best Interest”
Many investment advisers who act as fiduciaries charge investors a percentage of their assets under management. This structure eliminates commissions, which can cause conflicts of interest that can lead an advisor to recommend one product over another, even if it is to the client’s detriment.
The SEC regulates fee accounts, so if you pay your adviser a fee instead of commissions, the adviser needs to act as a fiduciary. However, a conflict of interest can still exist.
Generally, conflicts of interest can arise when advice related to transactions with the potential to reduce a client’s assets under management is given. For example, some potential conflicts of interest that Apprise Wealth Management has identified include the following:
- Advising whether to roll over a pension plan or leave it with a former employer
- Giving guidance related to charitable contributions
- Advising about gifts to children to avoid estate taxes
- Giving guidance about annuities, including charitable annuities
- Advising about purchasing a larger home and investing generally in real estate
- Paying off a mortgage vs. investing in the market
- Purchasing more life insurance
- Completing a Roth conversion vs. keeping the funds in an IRA or 401(k) account
How Do I Know If My Adviser Is a Fiduciary?
Determining if an advisor acts as a fiduciary may be easier than you might think.
Here are some ways you can answer this question:
- Does the advisor hold any professional designations? For example, the CFA Institute requires Chartered Financial Analysts(CFA®) to put a client’s best interests first and act as fiduciaries. Certified Public Accountants (CPAs) who work as financial advisers must also act as fiduciaries. Certified Financial Planners (CFP®) also must act as fiduciaries when working as financial planners. A Registered Life Planner (RLP®) gets to know what matters most to you, which allows them to truly make recommendations in your best interest.
- You can ask. No one would lie about it.
- If the person works for a registered investment adviser, they must act as a fiduciary. You can check their Form ADV Part 2. You can find it on the SEC website. The adviser is also required to give you a copy of his/her ADV before you become a client.
You can also ask the advisor the following questions:
- How are you compensated?
- Do you work for a fee, a commission, or both?
- Do I pay you, or are you paid based on what I invest my money in? For example, a salesperson can earn a commission for selling an annuity, mutual fund, stock, bond, or alternative investment.
- Are you a Registered Investment Adviser representative?
- What professional designations do you hold?
Note that these are all essentially “yes” or “no” questions. No long answers are required. But you should know the answers. They can help you confirm that you work with a fiduciary adviser.
You Can Look It Up
You can also look up the advisor on FINRA’s BrokerCheck website. After putting in their name, see what it says. If it says “B – Broker Regulated by FINRA,” they are only held to the lesser suitability standard. In other words, they can put their interests ahead of yours if their recommendation is at least suitable for you). When it says “IA – Investment Adviser,” the individual acts as a fiduciary who must always work in your best interests. If it says “PR–Previously Registered Broker,” they used to be a broker. Now they are either retired, no longer working as an advisor, or currently work as a fiduciary.
What It Means to Work With a Fiduciary Financial Adviser
A fiduciary’s loyalty is to you, not to their company. Fiduciaries act in your best interests, not theirs. A fiduciary financial adviser should provide full disclosure of all fees and not buy “financial product(s)” for your account that are for their financial benefit rather than yours.
You also pay fiduciaries directly. This can be by the hour, a flat fee, or an agreed-upon percentage based on your assets or net worth. You pay for asset management. Your fee may also include a financial plan, financial advice, or a combination of these items.
Medical professionals do not put their interests ahead of their patient’s interests. Attorneys are required to put their client’s interests first. Why should financial advice be any different?
In the end, the goal should be to build a lasting relationship with your adviser. One that is based on honesty and showing that you want your client to reach her financial goals. Transparency and honesty are required elements in a mutually beneficial relationship.
A Fiduciary Oath
Whether a fiduciary rule ultimately passes or not, working with a fiduciary financial adviser matters. As a client, you can also ask your adviser to confirm in writing that he or she acts as a fiduciary who will place your best interests above their own. TheFiduciaryStandard.org provides a fiduciary oath that advisers can download and provide to clients. Apprise Wealth Management provides its clients with a signed copy of this oath. We also discussed our willingness to sign a fiduciary oath during this radio interview. Apprise also adheres to the CFA Institute’s Code of Ethics and Standards of Professional Conduct, which goes beyond the standards followed by many RIAs.
Key Takeaways
✔ Fiduciary advisors are legally required to act in your best interest.
✔ Brokers and dual-registered advisors can recommend higher-cost products that benefit them more than you.
✔ Always ask: “Are you a fiduciary 100% of the time?” and verify through FINRA’s BrokerCheck.
✔ Lower fees = higher returns—work with a fiduciary who prioritizes low-cost, high-quality investments.
✔ Take action: Choose a financial partner who puts you first
In the end, wouldn’t you rather work with a financial professional bound to put your best interests ahead of their own interests?
Your financial future shouldn’t be left to chance. If you want advice that truly puts your interests first, let’s talk. Schedule a free consultation today and take the first step toward improving your confidence in your financial future.
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For firm disclosures, see here: https://apprisewealth.com/disclosures/
