Who Operates with a Fiduciary Standard?

Fiduciaries are legally obligated to work in your best interest. So, where can you find these financial professionals and what else do you need to know?

Understandably, no one trusts a sales person. Why the financial services industry still permits some financial professionals to sell products and earn commissions is something those of us who are fiduciaries scratch our heads over.

When it comes to personal finance, there is just too much at stake. And while most people aren’t trying to rip you off, the industry has certainly been riddled with enough fraud and scandal by greedy individuals or institutions that we won’t leave it to chance.

What Investors Need to Know

Who’s Who

Independent registered investment advisors (RIA) and CERTIFIED FINANCIAL PLANNERSTM are held the what’s known as a Fiduciary Standard. This standard requires, by law, that these financial professionals put the needs of the client above their own. Broker dealers, on the other hand, are held to a suitability standard. This means that they only must determine that an investment is suitable for a client and may recommend or sell it to a client.

Compensation Structure Decoded

Fiduciaries are fee-only financial advisor, who only get paid by collecting fees – typically a percentage of the assets they manage. Suitability financial advisors are either commission-based or fee-based, meaning they earn commissions on the products they sell or a combination of commission and fees.

Conflict of interest

If your financial advisor is pushing certain investments like a salesman, he or she may be earning a commission. If you’re not sure, ask. They have to disclose their compensation structure. You can always request a copy of a financial advisors From ADV, in which they must disclose any possible conflicts of interest to the public.

When a financial advisor is commission-based, they can never work in a client’s best interest because the compensation structure inherently contains a conflict of interest. The fact of the matter is, brokers have been bound only to recommend only what’s ‘suitable’ to their clients, not what’s best.

Pro Tip: Always Ask About the Fiduciary Standard!

Working with financial advisors who are fiduciaries can offer you a greater sense of peace about your finances when you know someone is obliged to do what is best for you.

Finding out whether your financial advisor a fiduciary will either set your mind at ease or give you cause to start shopping around for someone who has indeed taken a fiduciary oath.  Don’t settle for less.



John Wenzel

John Wenzel is the Co-founder of Archvest Wealth Advisors, a Fee-Only financial planning firm located in the East Bay of San Francisco. Their offices are in the city of Walnut Creek, California. At Archvest, John works with high net worth individuals, executives and small business owners focusing on their planning needs around insurance matters, tax strategies, estate planning and investment management.

John and I became friends through NAPFA and I asked him to write some thoughts on “Who Operates with a Fiduciary Standard?” as a guest topic for this site.