Fiduciary vs. Non-Fiduciary Advisors - 6 Ways to Know the Difference

Posted by Doug Kinsey - 02 June, 2020

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Fiduciary vs. Non-Fiduciary Advisors

During initial conversations with new clients, we are often asked what sets us apart from other advisory firms.  Among other characteristics, such as our comprehensive approach to advice, our focus on lower-cost investment solutions, integrated wealth planning, tax services, and an experienced team of advisors, we are true client fiduciaries.  

In our profession, being a fiduciary means that we adhere to a client-first philosophy, and base our recommendations solely on what is in the best interests of the client.   

You might ask why that is such a different approach.  The answer is that very few advisors throughout the United States are truly fiduciary advisors.  How do you know if your advisor is a fiduciary?  Here are some guidelines to help you:

  1. The advisor is only an SEC or state-registered investment advisory firm, and holds no other sales licenses through FINRA, a broker-dealer, or an insurance firm.  Why is this important?  Holding sales licenses enables the payment of commissions to the advisor.  When outside compensation, such as commission payments is possible, it creates a conflict-of-interest when delivering advice.  Regardless of what anyone tells you, serving two masters is not compatible with objective advice.
  2. The advisor is not "dual-registered" as a Registered Investment Advisor and as a broker.  Many firms will hold both licenses, and although advisors in those firms may tell you that "in this case, I'm a fiduciary, as I'm acting as an investment advisor," sometimes they also have the ability to transact insurance, annuities, or investment products for a commission.  This is not a true fiduciary relationship, and is sometimes described as "fee-based" as opposed to "fee-only."
  3. Check with FINRA's Broker Check website to see what licenses an advisor may hold.  If they are securities licenses, such as the Series 7 (General Securities Representative Qualification Exam) or Series 6 (Mutual Funds and Variable Products Representative), they are most likely NOT client a client fiduciary.
  4. Holding a CFP or other industry certification is not a guarantee that an advisor is a client fiduciary.  The major industry associations that issue certifications do not require that an advisor operates as a fiduciary.
  5. Check out the advisor's form ADV part II that is filed with the SEC or state securities office.  This document should identify the forms of compensation and sources of revenue earned by the firm.  If you see that the advisor has an interest in an insurance operation or is licensed to sell securities, you know you are not dealing with a fiduciary.
  6. The client agreement should not reference the ability to recommend insurance or the sale of securities products.

These are just a few tips to help you know the difference between a fiduciary and non-fiduciary advisor.  It is extremely important that you take the time to find out, as the objectivity of advice that you will receive depends on the answer.  And, in the world of financial planning and investment advice, objectivity is one of the primary benefits of hiring an advisor.

Artifex Financial Group has been a fiduciary advisor since we opened our doors in 2007, and that has made an invaluable impact on the lives of our clients.

If you want to learn more, schedule a complimentary discussion with us here:

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Topics: Fiduciary, advisor, non-fiduciary


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