A Fiduciary is obligated to act in the best interest of the client. In the world of financial professionals, the fiduciary role is filled by Investment Advisors. Stock Brokers, or just Brokers, are similar to Advisors, but Brokers are only supposed to meet a suitability standard, whereas Advisors are obligated to act in the best interest of the client.
The fiduciary vs. suitability distinction is echoed in the compensation of financial professionals. To minimize conflicts of interest, Advisors are generally compensated via an hourly rate or by a percentage of assets under management. On the other hand, Brokers are compensated by commissions on the financial products that the Brokers sell. Thus, Brokers have an incentive to sell clients on the products that pay the highest commissions.
My Take
Just because someone brands himself as an Investment Advisor does not necessary mean that he is “fee-only” and not double-dipping by also getting commissions off the products he sells. Look for an Advisor who does not sell any commission laden products. In addition, look for an Advisor who takes this a step further by making recommendations like, paying off credit cards and maximizing employer 401(k) contributions. These recommendations take management dollars away from Advisors, but they are in the best interest of the client, which is what a Fiduciary is all about.
