"WTF: What the Fiduciary?!"

"WTF?" you might be thinking, and we don't blame you.

"Fiduciary" is an elusive term that's been dodging understanding since 1631. But today we're going to demystify it once and for all.

Before we dive in, let's set the scene.

Did you know not all financial advisors are equal? Until relatively recently, the term "financial advisor" was used to describe various positions across the financial industry. But recent regulation from the U.S. Securities and Exchange Commission (SEC), called Regulation Best Interest (Reg BI), has limited who can use the title.

Any advisor registered with the SEC is legally required to abide by fiduciary duty, and as a result, must put clients' interests ahead of their own. According to the SEC, fiduciaries are expected to exercise a duty of care and a duty of loyalty to clients, and as a result, are "held to the highest standard of conduct."

If you're looking for a fiduciary financial advisor, our free quiz can help match you with up to three vetted fiduciaries who serve your area. The entire process of finding and having initial discussions with a fiduciary is free!

So, What the Fiduciary Is a Fiduciary?

Merriam-Webster's definition, "one that holds a fiduciary relation or acts in a fiduciary capacity," isn't exactly crystal clear. We prefer Dictionary.com's take: "a person to whom property or power is entrusted for the benefit of another."

Ah, now we're getting somewhere!

Fiduciaries are financial advisors with a legal obligation to prioritize your interests as they manage your assets or money. Unlike an advisor who may push you into insurance policies or investments to rack up fees and commissions, fiduciaries are bound to recommend options that benefit you, the customer, and while conflicts of interest can still exist, any potential conflicts of interest must be disclosed.

Entrusting Your Life's Work and Savings

As mentioned earlier, the SEC's Reg BI under the Securities Exchange Act of 1934 establishes a "best interest" standard of conduct for non-fiduciaries (such as broker-dealers and associated persons) for when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendations of types of accounts.

On the surface it sounds similar to a fiduciary duty.

But dig a little deeper:

"Notably, the rule does not say that best interest means that a broker must place the customer's interests ahead of the broker's, which is what most people would think a best-interest regulation would include," said Benjamin Edwards, an associate professor of law at the University of Nevada, Las Vegas. That still allows brokers or their firms to consider their own pockets when making recommendations, he said.¹

Why the Fiduciary Is This Important?

Here's why: A 2022 Northwestern Mutual study discovered that U.S. adults working with a financial advisor feel that they could be able to achieve long term financial security.²

While the value of working with a financial advisor varies by person and advisors are legally prohibited from promising returns, research suggests people who work with a financial advisor:

• Feel more at ease about their finances
• Could end up with about 15% more money to spend in retirement³

Many Americans choose not to consult a fiduciary financial advisor because they may believe the costs will be too high. However, a 2021 AdvisoryHQ study found that the average AUM fee for a $50,000 account was about 1.18% or just $590 with average fee percentages declining as portfolio balances increase. In fact, the study found that the average annual advisor fee for $1 million portfolio was just $10,200.⁴

How the Fiduciary Do You Find a Fiduciary?

This is the biggest hurdle for many. With thousands of daily Google searches for "Fiduciary financial advisors near me," "best fiduciary financial advisor," and "financial investment advisors near me," the hunt for a vetted fiduciary advisor can feel like a wild goose chase.

But it doesn't have to be. And thankfully, it really isn't.

Our free matching quiz links Americans with up to three fiduciary financial advisors who serve their area so they can evaluate and choose the one who fits their needs.

SmartAsset has matched thousands of people with financial advisors. Advisors are rigorously vetted through our proprietary due diligence process. We only match with fiduciaries, so all of your financial advisor matches are legally committed to acting in your best interest.

Our advisor matching service is at no cost to you and there is no obligation to work with any of your advisor matches. You're in control.