What Makes Fiduciary Advice Different?
In order to be considered a fiduciary, a financial advisor must legally swear to always place the best interests of the client ahead of their own.
The way in which a fiduciary advisor is compensated for their work is also a big distinguishing factor. Unlike other "advisors," fiduciaries are compensated by charging an hourly rate, through a percent of assets under management, with a flat fee, or by a retainer.
Fiduciary advisors never sell any investment products or earn a commission. In other words, they do well when their clients do well.
What About Brokers and Other Advisory Models?
Brokers and other financial advisors don't carry the fiduciary standard. Therefore, they aren't required to keep their clients' best interest in mind.
This means that they are free to sell high-commission financial products that usually benefit the "advisor" more than it does the client.
Our word of advice? Stay as far away from these people calling themselves financial advisors as much as possible.
How They Compare
Fiduciary Financial Advisors
Fees: flat rate for services, percent of assets under management, or retainer/subscription fee.
Duty to Client: uphold the highest level of objectivity. They don't sell products or make commissions and therefore, aren't incentivized to recommend something you don't need.
Fee-Based Advisors, Stock Brokers, and Other Investment Representatives
Fees: these advisors are compensated by selling financial products and earning commissions.
Duty to Client: they have no legal duty to uphold their clients' best interest. Any advice given is most likely part of a larger pitch tied to commissions and sales.