A fiduciary has a legal duty to put another person's interests first in the work covered by that duty.
What it means
In money advice, the word matters because advisers and salespeople can be paid in different ways. Some may earn more when you buy one product instead of another.
Do not stop at the label. Ask whether the person will act as a fiduciary for you at all times and for every account or recommendation. Get the answer in writing.
A simple example
Imagine two investments that do the same basic job. The first costs you $50 a year and pays the adviser nothing. The second costs you $500 a year and pays the adviser a $300 commission—a payment for making the sale. That commission creates a conflict because the adviser earns more from the second choice.
A fiduciary should compare both choices, tell you about the commission, and ask which investment is better for you—not which one pays the adviser more. If the cheaper choice gives you what you need, the fiduciary should recommend it. If the more expensive choice has a real benefit you need, the fiduciary should explain that benefit and why it may be worth the extra cost. The cheapest choice is not always the best choice. Your needs should decide—not the adviser's payday.
What people often miss
The word fiduciary does not promise skill, low fees, or good results. It describes a duty, not a guarantee.
The exact legal duty can depend on the account, the service, and the law that applies.
Three questions worth asking
- Will you act as a fiduciary for me at all times?
- How are you and your firm paid?
- What conflicts do you have, and where are they written down?
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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