Fiduciary vs. Financial Professional: What’s the Difference?

Apr 27, 2022 | Blog

comparing fiduciaries and financial professionals, highlighting their roles, responsibilities, and the importance of fiduciary duty in financial planning

The term Fiduciary has become more popular in recent years due to the latest changes in regulation. Dodd-Frank Act, SEC’s Regulation Best Interest, and DOL’s Fiduciary Rule are all examples of recent legislation attempts at defining the roles and responsibilities of financial advisors. We believe the main issue is that the aforementioned rules sometimes only pertain to certain types of financial professionals, and it becomes confusing for the general public to determine when the specific regulations are applicable.

 

The Role of a Fiduciary

Being a Fiduciary means the professional is required by law to act in the best interest of their clients. Many industries can use the term, but it is usually pertaining to a financial professional. A Fiduciary is only allowed to make recommendations that will benefit the client, and they must follow procedures to avoid conflicts of interest.

They must perform their due diligence to ensure every recommendation is the best possible suggestion, and they must ensure the client fully understands the investment before moving forward. You can trust a Fiduciary and their recommendations because, by law, they must be in your best interest.

 

The Role of a Financial Professional

Financial Professionals only follow the suitability guidelines, which means the recommendations have to be “suitable” for the client. It does not have to be the best suggestion, but it has to be suitable for the client. There is a lot of gray-area with this rule and it allows the professional to create recommendations that may benefit them personally via increased commissions.

This recommendation may be suitable for the client, but why would they want it if there was something better? Luckily, the government is taking steps to protect the average American investor by requiring more and more financial persons to act as Fiduciaries.

 

Infographic illustrating the differences between fiduciaries and financial professionals, including key responsibilities, standards of conduct, and impact on financial planning and investment decisions.

 

Working With Someone You Trust

There are a few key steps that can be taken to ensure you are working with a Fiduciary you can trust. Registered Investment Advisory (RIA) firms and their Financial Advisors are all held to the Fiduciary level. Additional audits are required by the state or Securities and Exchange Commission (SEC) to ensure these firms are in accordance with the ruling. CERTIFIED FINANCIAL PLANNER™ professionals are also held to a Fiduciary standard. This designation requires professionals to abide by the Code of Ethics and Standards of Conduct outlined by the CFP® Board.

On top of being a Fiduciary, it is still important to find a Financial Advisor you enjoy working with and one that you can trust on a deeper level. Would they still hold your interest above their own if they were not legally required to? If the answer is not a resounding YES then perhaps you should continue looking for a trustworthy advisor.

 

Fiduciary vs. Financial Professional: Key Takeaways

  • A Fiduciary is a professional individual or organization that is required to act in the best interest of their clients.
  • A Financial Professional is an individual who solicits or provides insight and recommendations towards a client’s financial goals.
  • A Financial Professional is not always a Fiduciary, so it is important to do your research and hire a professional you can trust. Some professionals are more concerned with their commissions rather than what is best for the client.

Have More Questions?

If you have any questions about our fiduciary responsibility, taxes, your individual investment portfolio, our 401(k)-recommendation service, or anything else, please call our office at (586) 226-2100.  Please feel free to forward this commentary to a friend, family member, or co-worker. If you have had any changes to your income, job, family, health insurance, risk tolerance, or overall financial situation, please give us a call to discuss it.

We hope you learned something today. If you have any feedback or suggestions, we would love to hear them.

Best Regards,

Zachary A. Bachner, CFP®

with contributions from Robert Wink, Kenneth Wink, James Wink, and James Baldwin

After graduating from Central Michigan University in 2017 with specialized degrees in Finance and Personal Financial Planning, Zachary Bachner set himself apart by earning the CFP® designation. Zachary now writes articles aimed at helping everyday people understand complex financial topics. He focuses on explaining financial planning concepts and strategies in clear, simple terms.

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