Searching for a fiduciary advisor can be one of the top priorities for a household seeking financial advice. Understanding what one is and how they work is very important.

A fiduciary financial advisor is one who acts in the best interests of the client. Not all financial advisors are required to function as a fiduciary. Additionally, depending on the type of professional and the services being received may dictate whether you are receiving fiduciary advice.

Per the CFP Board’s Code & Standards, a financial planner or financial advisor that is a CERTIFIED FINANCIAL PLANNER™ professional is ethically bound to function as a fiduciary. Likewise, a financial planner or financial advisor registered as an Investment Advisor Representative (IAR) is legally required to always function as a fiduciary regardless of the type of services being provided.

Not all advisors are CFP® professionals or IARs and do not have this mandate. Thus, it is important to understand how these advisors operate and whether fiduciary advice is being received.

An Advisor or CFP® professional that charges a fee to create a financial plan must be registered as an Investment Advisor Representative. Charging a fee to create a financial plan means that the advisor is required to act as a fiduciary.

A financial plan is ultimately a multi-step process: plan creation, implementation, and plan monitoring. It is in these stages where it can be unclear whether fiduciary advice is being offered.

A CFP® professional is required to act as a fiduciary in all aspects of the relationship: plan creation, implementation, and monitoring. A CFP® professional can derive their compensation on a fee-only or fee-based basis. The key difference between these two is that a fee-based professional can receive commissions on insurance and/or investment products while a fee-only professional does not. Here are some visuals to help explain the fiduciary obligation during the financial planning process and the type of compensation received.