What Makes a Fiduciary Different

In recent years, ‘fiduciary’ has become something of a marketing buzzword. But buzzword or not, fiduciary responsibility remains an important differentiator among financial advisors. At The Fiduciary Group, this responsibility has formed an important part of our identity since the firm’s earliest days. 

Serving as a fiduciary is a commitment to put the client first. While this is technically a legal term, I have always viewed the fiduciary commitment as an ethical framework for managing client relationships. Fiduciary advisors are required to put their interests (and those of the firm they work for) behind the client’s, an obligation that impacts every aspect of the advisory process. 

Not all financial advisors serve as fiduciaries. This distinction matters, since it can have a meaningful impact on the advisor relationship a client experiences. For clients looking to make the most informed decisions, it’s worth understanding what fiduciary duty entails and how to verify an advisor’s fiduciary status. 

Defining the Fiduciary Standard

Registered Investment Advisers (RIAs) and their representatives are legally bound to follow the ‘fiduciary standard.’ Under this standard, an advisor must act in the best interests of their client. Moreover, a fiduciary must avoid (or fully and fairly disclose) any fee structures that could bias their advice. As a legal obligation, the fiduciary standard comes with potential civil liability if breached.

Other advisors, such as those working at brokerage firms, are held to the ‘suitability standard.’ This standard requires advisors to offer guidance and products that are considered appropriate for a client. Under the suitability standard, advisors are allowed to recommend strategies that may not be in the client’s best interests. 

Because they operate under a separate legal standard, non-fiduciary advisors can have compensation structures centered on a commission-based model. Early in my career, I saw firsthand how this approach could potentially skew advisor incentives. In contrast, fiduciary advisors are not faced with these pressures when developing a wealth strategy for clients. 

Fiduciary Duty: Why It Matters

There are three key reasons that working with a fiduciary advisor may lead to better outcomes:

• Reduced conflicts of interest. Under the fiduciary standard, advisor guidance is based solely on a client’s financial goals. Fiduciaries do not engage in undisclosed commissions or revenue-sharing deals.
• Greater relationship transparency. Fiduciaries are legally required to provide clients with all ‘material facts’ about the advisory relationship, including compensation structure, fees, and regulatory actions. This can create a more transparent advisor-client relationship.
• Consistency during volatility. During periods of market volatility, non-fiduciary advisors may be incentivized to recommend that clients trade frequently or alter strategies. Because fiduciaries are only focused on client outcomes, they can offer a steadier hand through uncertainty. 

The difference between the suitability standard and the fiduciary standard can seem small. But in practice, the distinction can have a meaningful impact on how advisors operate. 

The Fiduciary Standard in Practice

At The Fiduciary Group, our fiduciary commitment guides every part of the advisory process, from financial planning to client communication.

To ensure that all aspects of a client’s strategy are considered, our planning approach involves deep collaboration between advisors, portfolio managers, and the clients themselves. This enables us to give the best guidance we can while also ensuring that clients can ask questions and voice concerns. Regular reviews make sure that this plan stays aligned with evolving client goals. 

Over the course of our client relationships, we focus on educating clients and their families. As fiduciaries, our advisors benefit from working with informed clients who take an active role in their financial journeys. That focus on education is paired with a habit of clear communication to foster transparency.

Finally, our fiduciary duty requires us to do what some advisors won’t – giving clients the advice they may not want to hear. Delivering sound financial advice isn’t always easy or popular. But the willingness to have candid conversations is part of a fiduciary’s role. 

Choosing a Fiduciary Advisor

When considering working with an advisor, understanding the legal standard to which they’re held can enable more informed decision-making. The questions below can help determine whether an advisor is a fiduciary:

1.    Are you a fiduciary advisor legally required to act in my best interest? A fiduciary should be able to answer this clearly and without hesitation – yes.
2.    Are you dual-registered under a broker-dealer? Some fiduciary advisors are also registered as a broker, meaning they can be held to a fiduciary standard in some cases and a suitability standard in others. This ‘hat switching’ can be challenging to navigate, since clients may not always be certain which standard the advisor is acting under.
3.    How are you compensated? Fiduciary advisors are most typically compensated only by their clients on an asset-based or flat fee arrangement. This question can help reveal compensation structures that might create a conflict of interest.

Clients can also verify these answers by searching for the advisory firm on the SEC’s Investment Adviser Public Disclosure database, which includes a mandatory relationship summary.

Conclusion: The Fiduciary Difference

Serving as a fiduciary is foremost a legal commitment. But it’s also an ethical responsibility that guides an advisor’s actions. At The Fiduciary Group, this commitment to client service stands at the heart of our firm’s identity.

If you’d like to learn more about our approach, please reach out to us at any time.