When it comes to money matters and planning for the future, you’ve probably heard about financial advisors. But did you know that there are two types of financial advisors, fiduciary and non-fiduciary? And, while both types of advisors can play essential roles in guiding individuals and businesses towards financial security and prosperity, they operate by two different sets of rules that can impact the outcomes for their clients.

A fiduciary financial advisor is bound by a legal and ethical duty to act solely in the best interests of their clients – as a fiduciary. This fiduciary standard demands a relationship of trust, loyalty and transparency. When recommending financial products, making investment decisions, or providing financial advice, a fiduciary must prioritize the client’s welfare above all else. This means they must put the client’s interests first, ahead of the needs of the investment firm or advisor.

By comparison, a non-fiduciary financial advisor is held to what is called the “suitability” standard. That means they have to give advice that is generally suitable to you, but not necessarily the solution that is lowest cost, best for client, or free from conflicts of interest. This can leave clients wondering whether the advice they receive truly serves their best interests.

Another critical distinction between fiduciary and non-fiduciary advisors lies in their compensation structures. Fiduciary advisors often charge a fee-for-service or a percentage of assets under management (AUM). This is regardless of the investments used. It allows fiduciary investment advisors to recommend the very best investments at the lowest cost without regard to commissions or other incentives. This payment model also aligns their interests with the client’s, as their income increases when the client’s assets grow. This way, fiduciary advisors are incentivized to focus on long-term success and financial well-being.

In contrast, non-fiduciary advisors might earn commissions from financial products they recommend, creating potential conflicts of interest. Some non-fiduciary advisors may be tempted to prioritize products that offer higher commissions rather than those that best suit the client’s needs.

Choosing between a fiduciary financial advisor and a non-fiduciary one is a big deal. Fiduciaries have a legal and ethical duty to put you first–no “ifs”, “ands” or “buts”. Non-fiduciaries try to do right by you too, but they might have more leeway and looser standards. So, while both types of advisors play essential roles in guiding clients towards their goals, the fiduciary’s high level of transparency and duty to the client’s best interests set it apart.

In the end, if you’re looking for a financial advisor to work with, remember to ask if they are a fiduciary. Find someone who clicks with your financial style and needs and gives you confidence in reaching your goals.

Whoever you choose to work with on your investments, invest smartly and invest well!

Larry Sidney is a Zephyr Cove-based Fiduciary Investment Advisor Representative. Information is found at https://palisadeinvestments.com/ or by calling 775-299-4600 x702. This is not a solicitation to buy or sell securities. Clients may hold positions mentioned in this article. Past Performance does not guarantee future results. Consult your financial advisor before purchasing any security.