Under federal law, an investment adviser is a fiduciary. That means the adviser owes clients a duty of care and a duty of loyalty. Ask what role the person is acting in for your account and get the answer in writing.
What the duty actually means
A duty of care means the advice should fit the client’s goals, risks, and agreed services. A duty of loyalty means the adviser must not put the adviser’s interest ahead of the client’s interest. Conflicts must be handled properly, not hidden behind a friendly title.
The word financial advisor by itself does not tell you the person’s registration, legal role, or pay. A professional may act as an investment adviser for one service and a broker for another. The SEC says to understand when each role applies.
Ask for Form CRS, the short relationship summary. It explains services, fees, conflicts, standard of conduct, and disciplinary history. Then check the person and firm with the SEC’s free background tool.
How the duty can change a recommendation
Two funds fit a client’s goal. One costs 0.10% a year and pays the adviser nothing extra. The other costs 1.00% and creates more pay for the adviser. A fiduciary adviser cannot choose the costly fund simply because it pays the adviser more.
Cost is not the only fact. If the higher-cost choice provides a real service the client needs, the adviser can explain the benefit, the conflict, and why the choice is in the client’s best interest. The label does not replace that explanation.
What the word does not promise
Fiduciary does not mean perfect, cheapest, or free from every conflict. It describes a legal duty within the agreed relationship.
Ask whether the duty is ongoing or applies only to a limited project. The written agreement defines what the adviser has promised to do and monitor.
Three questions to ask out loud
- Are you acting as an investment adviser for this recommendation?
- How are you and your firm paid in dollars?
- Where are your services, conflicts, and monitoring duties written down?
Quick answers
Are all financial advisors fiduciaries?
Do not rely on the title. Ask about the person’s registration and role for the service you are buying, and read Form CRS and the written agreement.
Does a fiduciary have to recommend the cheapest investment?
Not automatically. Cost matters, but the adviser should consider the client’s full situation and explain why any extra cost is worth it.
Checked against primary sources
This explanation was checked against the sources below. Rules and limits can change, so check the source before making a decision.
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