Is My Financial Advisor Really a Fiduciary?

Not all financial professionals must put your interests first

When you consult a financial professional about your personal situation, it might be easy to assume that you will receive unbiased financial advice based on your best interests. However, this might not be the case if your financial advisor or financial planner is actually a more product salesman than a true fiduciary. In the following paragraphs, we will explain why it’s important to have a fiduciary financial advisor and how you can find out what protections you enjoy as a client of different professionals.

Different definitions lead to confusion

The financial services industry is enormous. Many types of fish–as well as sharks–swim in this pond. Adding to the confusion is the fact that, up to now at least, the term “financial advisor” or “financial planner” has no concrete meaning currently. Therefore, it’s difficult to know the differences among various financial professionals or to understand how each type is compensated.

Yet having a clear view of your advisor’s interests is critical because they may conflict with your own. Confirming fiduciary status can give you comfort that your advisor or planner is required by law to act in the client’s best interests at all times.

A fiduciary is someone charged by law to put your interests ahead of his or her own. Common examples of fiduciaries include trustees, attorneys, registered investment advisors, and pension investment managers. In each case, the fiduciary has been entrusted with the interests of a client and must disclose conflicts of interest and even avoid them where possible. As you will see below, in financial advice relationships, the professional’s compensation structure can influence the advice you receive and sometimes even attract bad actors to the business.

For example, compensation of broker-dealer representatives, who frequently are not fiduciary advisors to their clients, may include sales commissions based on which products you purchase, how often you trade, etc. Brokers who handle private equity investments can in particular garner significant commissions from placing investors into illiquid products (products that might lock up investor money for as much as a decade or more).

Broker standards

Brokers are held to a “suitability standard” set by their regulator, the Financial Industry Regulatory Authority (or FINRA). A recommended investment is suitable as long as it fits your situation at the time, even if it’s not the most cost-effective solution and even if your situation changes later.

So in the above example, if the research indicates that a liquid, low-cost equity ETF or mutual fund would put you on track for your retirement in 20 years, a private equity investment might also be “suitable” for this purpose, since it’s likely to mature in only ten. And the broker gets, say, 5% of your money for getting you to ink the deal.


Understandably, many in the investing profession feel that brokers should be held to a higher standard, and thus the controversy about a fiduciary standard, which you can read about through a quick online search. This situation could change if the Department of Labor’s Fiduciary Rule comes back into force after being vacated in 2018.


What might be less well known, however, is that financial planners can also earn commissions on product sales, especially if the products are insurance-based. Variable annuity compensation structures represent perhaps the most glaring example of this situation.

Many variable annuities lock you into a product through a “surrender charge” that lasts up to ten years. This covers the insurance company for commissions it had already paid to the salesperson upon purchase. Surrender charges add nothing to an investment’s quality, however. In fact, taking away your freedom to move to another product actually reduces the investment’s value in practical terms.

Fiduciary standards

A true fiduciary financial planner will carefully consider your financial situation to determine what sorts of insurance you actually need and will help you shop for the lowest-cost products that meet that need. If you use a fee-only financial planner, you will know that the product selection has not been based on a large up-front commission. Our recommendation is to confirm that your financial planner acts as a fiduciary and is not receiving any other compensation other than your fee.

In contrast to commissioned salespeople, most registered investment advisors (RIAs) are fee only. This means they charge you a set fee or a percentage of assets by contract and do not receive any compensation from product sales (although it pays to verify this). RIAs are regulated by the Securities and Exchange Commission (SEC) and are legally charged to put their clients’ interests ahead of their own compensation.

We believe the RIA approach is a superior structure for a financial planning and investing relationship. Advisors and planners are only human, so removing potential conflicts of interest in the compensation structure goes a long way toward ensuring that you receive unbiased advice that focuses entirely on your own retirement planning goals.

Many RIAs, including Alpha Fiduciary, offer financial planning services as part of their investment approach. After all, how can your advisor know what is best for you without collecting extensive information about your personal financial situation? And within the data gathering process there will be ample opportunities to show you how to save money on taxes, select the optimal types of accounts for your situation, set up beneficiaries correctly, structure your trust, choose investments that are sensitive to your own social goals, etc. This means you needn’t go to someone called a “financial planner” to get financial planning services.

How can you tell the difference?

So how do you find out whether your adviser or planner is a fiduciary? Ask him whether he is acting as a fiduciary when providing you services. And ask about compensation. Are there any commissions, referral fees, or other kickbacks that might influence the advice you receive? You can read the Firm Brochure (also called the Form ADV 2A) for information about how you will be billed and read the conflicts of interest section to be sure you have a full understanding.

Starting in June 2020, there will be a new form called the Client Relationship Summary (CRS) that makes it easy to compare advisors. This two- to four-page document summarizes such items as services provided, how the advisor or broker is compensated, conflicts of interest, disciplinary history, etc., and it will be written according to the SEC’s “plain English” standard so even unsophisticated investors will be able to understand what to expect from the relationship.

In the meantime, it makes sense to stick with credentialed professionals showing such designations as Chartered Financial Analyst (CFA®), Certified Financial Planner (CFP®), or Accredited Investment Fiduciary (AIF®), all of which impose codes of ethics on their certificants and whose issuing organizations can sanction their members for any violations.

About Arthur Doglione

Arthur is an industry veteran with more than 20 years of experience working with high-net-worth clients. He has an extensive background in wealth management with particular expertise in portfolio management. Before establishing Alpha Fiduciary, Art was a Senior Vice President with Merrill Lynch where he built his practice to be the largest of Merrill Lynch’s Arizona territory.

Art founded Alpha Fiduciary in 2006 and has completed two acquisitions since then. The firm currently serves clients across many states as a fee-only Registered Investment Advisor (RIA).

Art founded Alpha Fiduciary as a fiduciary advisory firm. This means it has a responsibility to its clients first and foremost.

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About Arthur Doglione

Arthur is an industry veteran with more than 20 years of experience working with high-net-worth clients. He has an extensive background in wealth management with particular expertise in portfolio management. Before establishing Alpha Fiduciary, Art was a Senior Vice President with Merrill Lynch where he built his practice to be the largest of Merrill Lynch’s Arizona territory. Art founded Alpha Fiduciary in 2006 and has completed two acquisitions since then. The firm currently serves clients across many states as a fee-only Registered Investment Advisor (RIA). Art founded Alpha Fiduciary as a fiduciary advisory firm. This means it has a responsibility to its clients first and foremost.