What is a fiduciary adviser and why does it matter?

When looking to hire a financial adviser to manage and grow your wealth, there are a number of key factors to consider before you make your selection – one being whether you’d prefer to work with an agent tied to a big financial house or with an independent wealth manager. Another major distinction it’s critical to make during your search is whether an adviser is operating under a fiduciary standard or under a suitability standard.

As these terms are foreign to many, this post aims to unpack what they mean and to outline why it’s so important to have a good grasp of these concepts before you go ahead and pick the professional who’s going to look after your hard-earned money.

The fiduciary standard vs. the suitability standard

Ultimately, the difference between a fiduciary adviser and a non-fiduciary adviser comes down to the standard of care that a wealth manager is obliged to offer his or her clients. The topics of trust and loyalty are central to this distinction.

In simple terms, a fiduciary financial adviser is ethically and legally required to make decisions that are in their clients’ best interests, even if these conflict with their own. Essentially, a fiduciary has a duty to always act in good faith, to not use your investments for their own benefit, and to not just disclose any potential conflicts of interest that might arise, but to actively avoid these altogether. This category of professionals is also obliged to keep track of your wealth circumstances on an ongoing basis and to consistently make calls that ensure your best interests are being upheld.

A non-fiduciary, on the other hand, is not bound by these kinds of legal requirements, and while they must offer advice and recommend products that are deemed “suitable” for their clients’ needs, they are not obliged to avoid conflicts of interest that might see them benefiting financially. In other words, your interests as a client don’t have to be put before their own. And yes, there are many wealth professionals out there who operate under this, known formally as the suitability standard.  

Why does this distinction matter?

It’s important to note that not all non-fiduciary advisers are out to mislead you and profit off your earnings, but it’s still an important distinction to make because there’s an inherent risk involved in working with anyone who does not put your interests first. You might not necessarily lose money, but if a financial professional is giving you even mildly biased advice, you also might not make the kind of money you would like to.

Whereas a fiduciary adviser has to recommend an investment product that is objectively the best possible option for you and your financial situation, an adviser working under a suitability standard might direct you to alternatives that will earn them a higher commission, but are still considered “suitable” for you (just not necessarily optimal). You therefore can’t be sure they’re recommending the investment solution that’s most lucrative for you (the better diversified option with lower fees, for example).

The only way to guarantee that you are receiving guidance that puts your best interests front and centre is to work with a reputable financial adviser who operates under fiduciary standards. At TRG, we endeavour to put your needs and interests first by offering tailor-made guidance on everything from investment to insurance solutions that are geared at enhancing your financial well-being.

Want to work with a financial adviser you can trust? Speak to us.