Fiduciary vs. Non-Fiduciary Financial Advisers: What's the Difference?

Short answer: In a fiduciary vs. non-fiduciary financial adviser comparison, the key difference is how far the duty reaches. A registered investment adviser owes you a fiduciary duty that, according to the SEC, applies to the entire relationship. A broker follows a different standard: under the SEC's Regulation Best Interest, a broker must act in your best interest when making a recommendation. Both can have conflicts of interest, so ask any professional how they're paid and to put their standard of conduct in writing.

"Financial adviser" is a broad label. The person helping you with your savings could be an investment adviser or a broker, and each comes with a different legal standard. This guide explains what a fiduciary is, how a broker's best-interest obligation compares, how each is paid and the questions that tell you which one you're working with.

What Is a Fiduciary Financial Adviser?

When people talk about a fiduciary financial adviser, they usually mean a registered investment adviser. The SEC's Investor.gov defines an investment adviser as a firm or person that, for compensation, is in the business of giving advice about securities. Advisers typically give ongoing advice about buying, selling or holding investments, and some also offer financial planning.

Investment advisers owe their clients a fiduciary duty under the Investment Advisers Act. When the SEC reaffirmed and clarified that duty in 2019, it described it as "principles-based" and said it "applies to the entire relationship between an investment adviser and its client." In plain terms, Investor.gov says investment advisers are required to act in your best interest and not put their interest ahead of yours.

Advisers generally must register with the SEC or with state securities authorities. The Department of Labor's fact sheet on fiduciaries puts the idea simply: an adviser acting as a fiduciary is working solely in your best interest.

What Does a Non-Fiduciary Financial Adviser Mean?

When people say "non-fiduciary," they often mean a broker, also called a broker-dealer. Investor.gov describes a broker as a firm or person in the business of buying and selling securities for customers. A typical broker carries out your buy and sell orders, may recommend investments or strategies and may agree to monitor some accounts. Brokers generally must register with the SEC and become members of FINRA.

Brokers follow a different standard from investment advisers, but that doesn't mean they have no duty to you. On June 5, 2019, the SEC adopted Regulation Best Interest ("Reg BI"), and brokers had to begin complying by June 30, 2020. Under Reg BI, a broker must act in a retail customer's best interest when recommending a securities transaction or investment strategy, and may not put its financial interests ahead of yours when making that recommendation. The SEC said this standard "cannot be satisfied through disclosure alone."

Reg BI has four parts:

1. Disclosure: The broker must tell you the material facts about the relationship and its recommendations.
2. Care: The broker must use reasonable diligence, care and skill when recommending something to you.
3. Conflict of interest: The firm must have written policies reasonably designed to identify conflicts and, at a minimum, disclose or eliminate them, and it must mitigate certain conflicts.
4. Compliance: The firm must have policies and procedures reasonably designed to comply with the rule as a whole.

Fiduciary vs. Financial Adviser: How Do They Compare?

Searches for "fiduciary vs. financial advisor" often mix up a title with a legal duty. The clearer comparison is between the two main kinds of SEC-regulated professionals:

	Registered investment adviser	Broker (broker-dealer)
Standard of conduct	Fiduciary duty under the Investment Advisers Act	Regulation Best Interest
When it applies	The entire relationship with the client	When making a recommendation to a retail customer
What it requires	Act in your best interest; don't put the adviser's interest ahead of yours	Act in your best interest; don't put the firm's financial interests ahead of yours when recommending
Typical pay	A fee typically based on the value of the assets in your account	A commission or markup each time you buy or sell
Registration	SEC or state securities authorities	SEC, plus FINRA membership
Where to check	Investor.gov's free search	Investor.gov's free search

The labels on a business card won't tell you which column applies. Your account agreement and the firm's relationship summary will.

How Are Fiduciary and Non-Fiduciary Advisers Paid?

Pay is where the practical difference shows up. Investor.gov says the fee for an investment adviser's advice is typically based on the value of all the assets in your account. You may also pay other fees and costs for servicing your account and for the investments you hold. A broker, by contrast, typically charges a commission or markup every time you buy or sell an investment, and may charge other account fees as well.

Neither model is free of conflicts. Investor.gov says the way advisers are paid "creates some conflicts with your interests," and says the same about the way brokers make money. It advises you to understand and ask about these conflicts, because they can affect the advice and recommendations you receive.

Our guide to how much a financial adviser costs walks through the common fee types, and the adviser fee calculator shows what an asset-based fee could add up to over time.

Is My Financial Adviser a Fiduciary? Questions to Ask

The most reliable way to find out is to ask, and to ask for the answer in writing. The Department of Labor's fact sheet suggests these questions:

1. Do you consider yourself a fiduciary?
2. Are you willing to act as a fiduciary with a duty to act solely on my behalf?
3. Are you willing to disclose to me any conflicts of interest that may interfere with your acting solely on my behalf?
4. Are you willing to put this commitment in writing?
5. Do you earn fees or commissions based on the number of products that I buy or the size of my investment?
6. Are you registered with the state, the SEC, FINRA or the CFP Board?

If the answers don't ring true or make you uncomfortable, the Labor Department suggests you shop around.

Investor.gov adds a few more questions worth asking any investment professional:

• How are you paid for your services? What is your usual hourly rate, flat fee or commission?
• Have you or your firm ever been disciplined by any regulator?
• Are you only supposed to recommend a limited number of products or services to me?

What Is Form CRS and Why Should You Read It?

SEC rules require brokers and investment advisers to give new, prospective and existing retail customers a relationship summary, also called Form CRS or Form ADV Part 3. It's a concise, plain-English document that explains the firm's services, fees, conflicts of interest and legal or disciplinary history.

For this comparison, two parts matter most: the summary says whether the firm offers brokerage services, advisory services or both, and it describes the required standard of conduct for the services the firm offers. The summary also includes "conversation starters," questions such as "How will you choose investments to recommend to me?" that you can ask in your first meeting.

Read the relationship summary alongside your account agreement, and ask which kind of account you're being offered and why.

How Do You Verify What an Adviser Tells You?

A fiduciary promise only helps if the person is properly registered and has a clean record. You can search any adviser or broker for free on Investor.gov, which shows whether a professional or firm is registered and whether they have regulatory issues or complaints. Check both the individual and the firm. Our step-by-step guide on how to check a financial adviser shows what to look for in each report.

The Bottom Line

A fiduciary financial adviser, in the SEC's terms a registered investment adviser, owes you a duty that covers the whole relationship. A broker, which people often call a non-fiduciary, must act in your best interest when making a recommendation under Regulation Best Interest. Both can have conflicts of interest built into how they're paid. Before you hire anyone, read the firm's relationship summary, ask whether they will act as a fiduciary in writing, find out exactly how they're paid and check their record on Investor.gov. Our guide to choosing a financial adviser covers the next steps.

Frequently asked questions

What is a fiduciary financial adviser?

In SEC terms, it's usually a registered investment adviser: a firm or person paid to give advice about securities. Investment advisers owe their clients a fiduciary duty under the Investment Advisers Act. Investor.gov says they must act in your best interest and not put their interest ahead of yours, and the SEC says this duty applies to the entire relationship.

Is a broker a fiduciary?

Brokers follow a different standard than investment advisers. Under the SEC's Regulation Best Interest, which brokers have had to follow since June 30, 2020, they must act in your best interest when making a recommendation and can't put their financial interests ahead of yours. The SEC says that standard can't be satisfied through disclosure alone.

How can I tell if my financial adviser is a fiduciary?

Ask directly. The Department of Labor suggests asking: Do you consider yourself a fiduciary? Are you willing to act as a fiduciary with a duty to act solely on my behalf? Will you disclose any conflicts of interest? Will you put this commitment in writing? Then read the firm's relationship summary, which describes its standard of conduct.

Is a fiduciary always better than a non-fiduciary?

Not automatically. Investor.gov (SEC) says the way both advisers and brokers are paid creates some conflicts with your interests, so you should understand and ask about those conflicts with either one. Compare the services you need, the total cost and each professional's record before deciding.

What is Form CRS?

Form CRS, also called a relationship summary, is a concise, plain-English document that SEC-registered brokers and advisers must give new, prospective and existing retail customers. It explains the firm's services, fees, conflicts of interest, required standard of conduct and any legal or disciplinary history, and it includes questions you can ask.

Sources

1. Investor.gov (SEC): Investment Advisers
2. Investor.gov (SEC): Brokers
3. SEC: SEC Adopts Rules and Interpretations to Enhance Protections and Preserve Choice for Retail Investors (June 5, 2019)
4. Investor.gov (SEC): Relationship Summaries (Form CRS or Form ADV Part 3) Investor Bulletin
5. U.S. Department of Labor (EBSA): How to Tell If Your Adviser Is a Fiduciary (fact sheet)

This guide is general information, not personal advice. Your situation may differ, so consider talking with a qualified professional, such as a fiduciary financial adviser, CPA or licensed agent, before making a decision.