If you’re looking for someone to help manage your wealth, you’ll probably come across a long list of titles: financial advisor, wealth advisor, financial planner, investment advisor, broker. Those titles don’t always tell you much about the standard the person is required to follow when giving you advice. That’s where the word fiduciary becomes important.
A fiduciary is required to act in your best interest. Registered Investment Advisers (RIAs), for example, have a fiduciary duty to their advisory clients. Brokers operate under a different standard when making recommendations to retail customers. Both can provide financial guidance. But the type of relationship you’re entering, how the advisor is compensated, what conflicts may exist, and the standard that applies can be different. Before hiring someone to advise you on a significant portion of your wealth, it’s worth understanding those differences. If you want a deeper explanation of what a fiduciary investment advisor is and how that duty works, we cover that separately.
What Does It Mean to Be a Fiduciary?
Registered Investment Advisers are subject to a fiduciary duty under the Investment Advisers Act of 1940. That duty includes both a duty of care and a duty of loyalty. In practical terms, an investment adviser is expected to provide advice that’s in the client’s best interest and not put the adviser’s interests ahead of the client’s. The fiduciary duty applies across the advisory relationship, although the specific services and responsibilities depend on the scope of the relationship you’ve agreed to.
Compensation is a separate issue.
Many RIAs, including Monument, operate on a fee-only basis. That means we’re paid by our clients and don’t receive commissions for recommending investment products. Other RIAs use different compensation structures, so being a fiduciary does not automatically mean an advisor is fee-only.
If you’re comparing firms, ask both questions:
- Are you acting as a fiduciary when you advise me?
- How are you compensated?
They’re related questions, but they aren’t the same question. We go deeper into the distinction between fee-only and fee-based advisors here.
What Standard Applies to a Broker?
Broker-dealers operate under Regulation Best Interest, or Reg BI, when making securities recommendations to retail customers. Under Reg BI, a broker must act in the customer’s best interest at the time a recommendation is made and cannot put the broker’s financial or other interests ahead of the customer’s. Brokers also have disclosure, care, conflict-of-interest, and compliance obligations.
One important difference is the nature of the relationship.
An investment adviser generally provides advice as part of an ongoing advisory relationship, based on the services you’ve agreed to. Reg BI itself does not require a broker to continuously monitor your account, although a broker can agree to provide monitoring services. Compensation can also look different. Brokers may receive commissions or other transaction- or product-related compensation, depending on the firm and account.
That doesn’t automatically make the recommendation inappropriate. It does mean you should understand how the person you’re working with gets paid and what conflicts that compensation could create.
Fiduciary Advisor vs. Broker: A Quick Comparison
| Investment Adviser | Broker-Dealer | |
|---|---|---|
| Standard | Fiduciary duty, including duties of care and loyalty | Regulation Best Interest for recommendations to retail customers |
| Relationship | Typically ongoing, based on the agreed scope of advisory services | Often transaction- or recommendation-based; monitoring may be offered by agreement |
| Compensation | May include advisory fees; some firms are fee-only | May include commissions, fees, or other compensation |
| Conflicts | Must be addressed consistent with the adviser’s fiduciary duty, including through full and fair disclosure when appropriate | Subject to Reg BI disclosure and conflict-of-interest requirements |
| Primary oversight | SEC or state securities regulators | SEC and FINRA |
| Key documents to review | Form ADV and, when applicable, Form CRS | Form CRS and other required disclosures |
What If Your Advisor Is Both?
This is where the distinction can get confusing.
Some financial professionals are registered to provide both investment advisory and brokerage services. You may hear them described as dual-registered or hybrid advisors. That means the capacity in which they’re working with you matters. They may provide investment advisory services under a fiduciary standard and brokerage services subject to Regulation Best Interest.
If you’re working with someone who offers both, ask:
Are you acting as my investment adviser or as my broker for this recommendation?
You can also review the firm’s Form CRS. SEC-registered investment advisers and broker-dealers that provide services to retail investors generally must provide this relationship summary when the applicable requirements are triggered. It explains the firm’s services, fees, conflicts of interest, and whether it offers brokerage services, investment advisory services, or both.
Registered investment advisers also file a Form ADV, which provides considerably more detail about the firm’s business, fees, services, conflicts, and disciplinary history. You can review those filings through the SEC’s Investment Adviser Public Disclosure database.
Both are worth reading before you hire an advisor.
Does Fee-Only Mean Fiduciary?
These terms are often used together, but they describe different things.
Fiduciary describes the legal standard that applies to the advice.
Fee-only describes how an advisor is compensated.
A fee-only advisor is compensated by clients rather than through commissions from investment products. At Monument, for example, we’re a fee-only Registered Investment Adviser.
You may also encounter the term fee-based, which can mean an advisor receives both client fees and commissions or other forms of compensation.
None of these labels should substitute for asking how the arrangement actually works.
Ask the advisor what you’ll pay, what services that fee covers, whether anyone else compensates the advisor or firm, and whether those arrangements create conflicts you should know about.
How Much Do Advisor Fees Matter?
Quite a bit—which is why you should understand the total cost rather than focusing on a single fee.
Consider a simplified example.
Suppose two investors each have a $2 million portfolio that earns a hypothetical 6% annual return before costs.
If one investor’s total annual costs are 1 percentage point higher, the difference compounds over time.
After 20 years:
- A portfolio netting 5% annually would grow to approximately $5.31 million.
- A portfolio netting 4% annually would grow to approximately $4.38 million.
That’s a difference of roughly $930,000.
This is only a hypothetical illustration. Actual returns, fees, taxes, and investment costs will vary. And a lower-cost advisor isn’t necessarily a better advisor.
But on a multimillion-dollar portfolio, even relatively small differences in cost can become meaningful over time.
When comparing advisors, ask for the total cost of the relationship, including advisory fees, underlying investment expenses, commissions or transaction costs, and any other fees you may pay.
How Can You Tell If Your Advisor Is a Fiduciary?
Ask. And be specific.
Instead of simply asking, “Are you a fiduciary?” try:
“Will you act as a fiduciary at all times when providing investment advice to me?”
Then ask a few follow-up questions:
- How are you compensated?
- Do you receive commissions or other compensation for recommending certain investments?
- Are you registered as an investment adviser, a broker-dealer, or both?
- Who will actually be providing advice and managing my portfolio?
- Where can I review your Form ADV and Form CRS?
You can verify an investment adviser and review its Form ADV through the SEC’s Investment Adviser Public Disclosure database. BrokerCheck can also provide registration and background information for brokerage firms and financial professionals.
Is a CFP® Professional a Fiduciary?
CFP® certification is another useful piece of information, but it answers a different question. Under CFP Board’s standards, a CFP® professional must act as a fiduciary when providing financial advice. That’s a professional obligation associated with the certification. You should still understand the person’s firm, registration, compensation structure, services, and any conflicts that could affect the relationship. Credentials can tell you something about a professional’s training and standards. They don’t eliminate the need to understand the business you’re hiring.
If you’re comparing different types of financial professionals, our explanation of wealth planning vs. financial planning may also be helpful.
So, Does the Fiduciary Difference Matter?
Yes. But I wouldn’t make a decision based on that word alone. You also need to know what services you’re getting, how much you’re paying, who will be working with you, how investment decisions are made, and whether the advisor has experience working with people whose financial lives look like yours.
For someone with a few million dollars—or considerably more—the relationship may extend well beyond choosing investments. You may be making decisions about concentrated stock, taxes, retirement, cash flow, an upcoming business sale, estate planning, charitable giving, or how much you can comfortably spend.
That’s why it’s worth understanding exactly who is sitting on the other side of the table, how they’re paid, and what responsibilities they have to you.
If you’re currently comparing firms, these questions to ask when choosing a financial advisor can help you evaluate more than the title on someone’s business card.
At Monument, we’re a fee-only Registered Investment Adviser. Our advisors work with our in-house investment team to connect financial planning and portfolio management, so investment decisions can be made with the rest of your financial life in mind. You can also read more about how we work as a fee-only fiduciary firm.
If you’re evaluating advisors—or wondering whether your current relationship is still the right fit—our Complimentary Wealth Check is one way to get a second perspective.
¹ This is a hypothetical illustration for educational purposes only, not a projection of any actual investment. It assumes a constant 6% annual return before costs, which is not guaranteed; actual returns, costs, and outcomes will vary. Past performance is not indicative of future results.
Note: Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. Please consult your CPA for tax advice.
Want to suggest a correction to this article? Email us at info@monumentwm.com.
