What is a Fiduciary? (And Why You Must Hire One)
Most “Financial Advisors” are just salespeople in expensive suits. They are legally allowed to sell you bad products to earn a commission. A “Fiduciary” is different. They are legally sworn to put your wallet before their own. Here is how to spot the difference.
“Best Interest” vs “Suitability”
This is the most important legal distinction in finance.
| Standard | The Rule | Can they sell junk? |
|---|---|---|
| Fiduciary Standard | “Client’s Best Interest” | NO (Illegal) |
| Suitability Standard | “Good Enough” | YES (If Suitable) |
Fund A: Costs 0.1% (Great for you).
Fund B: Costs 1.0% (Great for broker’s commission).
Since both are “suitable” for investing, the Broker can legally sell you Fund B to make himself rich. A Fiduciary would go to jail for doing that.
| Title | Trust Level |
|---|---|
| “Financial Advisor” | Unknown |
| “Fee-Only Fiduciary” | High |
Warning: The Word Game
Wall Street is tricky. They invented a term to confuse you.
1. Fee-Only (Good)
They only get paid by YOU (hourly rate or % of assets). They accept $0 from mutual fund companies. Their advice is 100% clean.
2. Fee-Based (Bad / Confusing)
They charge YOU a fee AND they take commissions (kickbacks) from insurance or fund companies.
“I charge you 1% to manage money, but I also get a bonus if I sell you this Annuity.” This creates a conflict of interest.
3. Commission-Based (Sales)
“Free” advice. But they only eat if they sell you a product. If the advice is free, you are the product.
How to Test Your Advisor
Don’t be shy. It’s your life savings. Ask this one question during the first meeting:
The Question
If they say: “Yes.” -> Good.
If they say: “Well, mostly, but sometimes when I sell insurance…” -> RUN.
If they say: “I follow the Regulation Best Interest standard…” -> RUN.