Are Financial Advisors Fiduciaries?

Financial decisions are some of the most important ones we make in our lifetime. Purchasing a home, investing in the stock market, and planning for retirement are just some of the significant events that can shape our future. Many people want to be guided in those decisions and seek the assistance of a financial advisor.


The title of financial advisor carries with it a degree of authority and trust, but what exactly does the designation guarantee to offer you? An underlying assumption exists that financial advisors should and will act with our best interests in mind, in other words, uphold a fiduciary duty. Did you know that not all financial advisors are obligated to maintain that fiduciary duty? Let’s take a deeper look at the roles of a financial advisor and fiduciary, terms which are often mistakenly used interchangeably.



Financial Advisor vs Fiduciary


financial advisor is someone who formulates a personalized financial strategy that helps you decide what to do with your money to achieve your goals and objectives. Millions of Americans hire financial advisors each year to help them manage their finances. A fiduciary is a person or organization that acts on behalf of another person, and they have a legal and ethical duty to act in good faith.


2019 Financial Trust Report by digital wealth manager Personal Capital found that nearly half of Americans falsely believe all financial advisors are legally required to act in their client’s best interests.

While many financial advisors are fiduciaries, it is not required, and not all of them are. Fiduciary financial advisors must only make recommendations in their client’s best interest, avoid conflicts of interest, and agree on compensation at the onset of the relationship.



What Financial Advisors Are Fiduciaries?


Financial fiduciaries must be legally accountable to their clients. They must adhere to professional practices, otherwise known as fiduciary principles, establishing trust with their client. There are various types of fiduciary financial advisors.


Certified Financial Planners (CFP)

A certified financial planner fiduciary is strictly held to the fiduciary standard when actively providing services or participating in financial planning. This fiduciary standard includes a duty of care, duty of loyalty, and duty to follow instructions. It is important to note that simply being a CFP does not make them a fiduciary. They need to be engaged in financial planning actively.


Registered Investment Advisor Fiduciaries (RIA)

Unlike CFPs, registered investment advisors are always fiduciaries according to the Securities and Exchange Commission’s Investment Advisors Act of 1940. These investment advisors are required to be always transparent and clear with their clients.


Retirement Advisor Fiduciaries

The Department of Labor maintains its own fiduciary requirement indicating that any advisor providing retirement advice is subject to a fiduciary duty. This includes advice pertaining to any retirement account, including 401Ks and IRAs.


Financial advisors that are not fiduciaries aren’t necessarily ill-intentioned; they simply lack the legal and ethical incentives to maintain your best interests consistently.



Is My Financial Advisor a Fiduciary?


If you are unsure if your advisor is a financial fiduciary, ask them. They should be able to give you a definite yes and put it in writing if it is the case. Consider their answer and evaluate the services you’ve received or have been promised to receive to draw your conclusion.



If you are seeking reputable financial advisory services, Creative Financial Group can fulfill your needs. Our team consists of professional advisors who are pleased to uphold their fiduciary duty regarding financial advice. Connect with us today to find out how we can support your goals.

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