A fiduciary has to put your interests first but can still earn commissions on what they recommend. A fee-only advisor is paid only by you. Before you hire an advisor, ask whether they’re fee-only and a fiduciary at all times, and get both answers in writing.
Say you’re retiring with $400,000 in a 401(k). Leaving it in the plan’s index funds and moving part of it into an annuity for guaranteed monthly income are both sound choices, but only the annuity pays your advisor a commission.
A fiduciary label won’t tell you whether that commission shaped the recommendation. Registered investment advisers owe you a fiduciary duty for the whole relationship, and brokers have had to act in your best interest since June 2020 under the SEC’s Regulation Best Interest, but only when they recommend something. Neither rule bans commissions. Certified financial planners must act as fiduciaries whenever they give advice, and the board that certifies them still lets them earn commissions.
Pay is what separates advisors. A fee-only advisor is paid only by clients, through a flat fee, an hourly rate, or a percentage of assets. A fee-based advisor charges fees and can also earn commissions on annuities, insurance, or mutual funds sold with a sales charge. That conflict comes with the pay arrangement, so it’s there however honest the advisor is. The SEC even requires every firm’s relationship summary to state that “the way we make money creates some conflicts with your interests.”
The at-all-times part matters. The same person can advise you as a fiduciary on one account and sell you a product on commission on another. Ask it of the advisor you already have, too, including one who came through a bank or an insurance agency.
Then check the written answer against the firm’s Form CRS, a short plain-English summary that SEC-registered brokerages and advisory firms must give everyday investors. Find the firm on Investor.gov, open its Relationship Summary, and read how its professionals make money.
Fee-only doesn’t have to mean a percentage of your portfolio. At 1%, a $400,000 portfolio costs $4,000 a year. If that prices you out, pay a flat or hourly fee instead, and use NAPFA’s directory of fee-only advisors to find planners who charge that way.
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