Fiduciary Vs. Financial Advisor: How These Types Of Advisors Compare

Fiduciary Vs. Financial Advisor: How These Types Of Advisors Compare

James Royal, Ph.D. Mon, September 9, 2024 Bankrate

It’s easy to get tripped up when it comes to the world of financial advisors, and distinguishing fiduciaries from non-fiduciaries can be challenging. But when you’re looking for financial advice, then having a fiduciary on your side can help you get the expertise and direction that’s best for your situation, making it a better fit than a financial advisor who is not a fiduciary.

Here are the differences between a fiduciary and a financial advisor and what you need to know.

What Is A Fiduciary?

A fiduciary is someone in a position of trust over the affairs of another. It comes from the Latin word fiduci, which means trust. A fiduciary is bound by law or oath to put their client’s interests ahead of their own, meaning those who engage a fiduciary should be able to fully trust them.

A fiduciary could be anyone with expertise — such as a lawyer, trustee or financial advisor — who must advise a client on the best way to proceed or otherwise act on their behalf.

What Is A Financial Advisor?

A financial advisor provides a range of advice and services around your financial life, including planning for retirement, managing your investments, preparing a budget, estate planning and much more. A financial advisor can construct a financial plan to help you grow your wealth.

Financial advisor is a catch-all term that includes many different kinds of advisors. There are those focused on specific areas such as investment advisors or wealth managers, or those with certain certifications such as specialists holding a certified financial planner (CFP) credential. The term may even include salespeople acting in the interest of a large financial institution who is looking to sell potential clients on the benefits of their products and services.

What Is The Difference Between A Financial Advisor And Fiduciary?

The roles of a fiduciary and a financial advisor may overlap in some ways, but may be dissimilar in other key dimensions. Here are a few of the biggest differences:

Duty Of Care

A fiduciary has a high duty of care for clients, meaning that a fiduciary must always put a client’s interests ahead of their own. In contrast, a financial advisor may only have to act according to a suitability standard, meaning that advice or products must be suitable to clients, rather than the best for their individual financial situation.

Area Of Practice

A fiduciary is a term that crosses domains, meaning that it can be used in areas besides finance. For example, lawyers are fiduciaries, as are the directors of a corporation, relative to its shareholders. In contrast, financial advisors concern themselves with issues related to assisting individuals in managing their money.

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