Choosing the right financial advisor can make a world of difference for managing your money. One of the most important distinctions to understand is whether or not your advisor is a fiduciary. The term “fiduciary” isn’t simply industry jargon. Having an advisor who is a fiduciary, or one that isn’t, can have real implications for the type of advice you receive, the fees you pay, and the trust you place in your advisor.
The Department of Labor attempted to implement a fiduciary rule for retirement advisors in 2016. While that rule faced legal hurdles and was ultimately vacated, it brought attention to fiduciary responsibility.
What is a fiduciary?
At its core, a fiduciary financial advisor is legally and ethically bound to act in your best interest. This means their advice must prioritize your financial well-being. It must be more important than their own compensation or the interests of any company they represent.
Alternatively, a non-fiduciary financial advisor may follow “suitability standards”, meaning they’re only required to offer recommendations that are suitable for you. However, they don’t have to necessarily be the best or most cost-effective options. This unrestricting standard can lead to conflicts of interest, especially when the advisor earns commissions on certain products.
What does a fiduciary do?
Here are four areas where you can see how a fiduciary may operate differently than a non-fiduciary:
| Fiduciary | Non-Fiduciary | |
| 1. Putting your interests first | Fiduciaries are under obligation to avoid conflicts of interest and disclose any that do exist. If their own financial gain influences their advice, they have to let you know and work to resolve that conflict in your favor. | Non-fiduciaries may recommend higher-cost investments which earn them more in commissions and are still “suitable.” |
| 2. Offering objective advice | Fiduciary advisors are often fee-only. Their compensation typically comes directly from clients through a flat fee, hourly rate, or percentage of assets under management. This structure helps ensure that their advice is objective and not influenced by incentives from third-party companies. | Non-fiduciary advisors may have incentives to sell specific products (like annuities or mutual funds). The products may pay them commissions, potentially skewing the guidance they provide. |
| 3. Providing ongoing duty of care | Fiduciaries must continuously monitor your investments and financial situation. This helps to ensure their advice remains in your best interest over time. They’re not off the hook after the initial consultation. | Non-fiduciaries might not offer ongoing support or only engage when you seek it out. It depends on their business model. |
| 4. Being transparent about fees | Fiduciary advisors are generally upfront about how they receive payment. This transparency helps build trust and avoids unknown costs down the road. | Non-fiduciary advisors, especially commission-based advisors, might have more complex compensation models. They’re not as easy to understand and potentially hide fees with product pricing or backend commissions. |
Making a decision
When you’re making major financial decisions, you may want someone in your corner who will act in your best interest. This can help if you’re planning for retirement, investing your savings, or choosing insurance. You can focus on your goals without guessing whether your advisor is steering you towards a decision that benefits them instead of you.
Before committing to an advisor, ask them directly if they are a fiduciary. Also, you may want to ask if they receive compensation by fee-only. The answers can reveal a lot about the quality of advice you’ll receive. Additionally, you can determine whether that advice may align with your best interest. A fiduciary advisor has a legal commitment to work for you, not for a sales quota or commission check.
Mercer Advisors is a boutique fiduciary with national strength. As an independent, SEC-registered investment advisor (RIA) we are obligated to always operate in your best interest. If you have more questions about fiduciary meaning or how we work with our clients to be their trusted advisor, let’s talk.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
