What the Investment Fiduciary Rule Means for You

Alex Acosta

Win McNamee / Staff/ Getty Images

In 2016, the Department of Labor introduced the fiduciary rule. After much turbulence, the rule was reversed in 2018.

The fiduciary rule was put in place during the Obama administration to require all financial advisors to act as fiduciaries, and brokerage firms notified all of their clients of this when the rule went into effect.

Although the rule is no longer in force, many investors have a new awareness of the difference between fiduciaries and non-fiduciaries and how this affects them. This could trigger positive changes in the way financial services firms interact with their clients going forward.

What Is a Fiduciary?

A fiduciary is defined as an individual or a legal entity, such as a financial advisor or financial services firm, that takes on the responsibility and has the power to act in the interest of another. This other person, the client, is often called a principal or beneficiary.

A fiduciary financial advisor cannot collect any commissions from the sale of investment products.

When a client works with a financial advisor, the client gives the advisor their trust and expects recommendations to be made with honesty and good faith in keeping with their best interests. This may not always be the case with a non-fiduciary advisor.

The Fiduciary Standard

When a financial advisor has a fiduciary duty, which is the highest standard of client care, it means that they must always act in the beneficiary's best interest, even when it's in opposition to theirs.

Financial advisors fall into two buckets: fiduciaries and non-fiduciaries. Contrary to popular belief, not all financial advisors have a requirement to put the client's interests first, and it can be difficult when the advisor works for a company that provides investment products and incentivizes the advisor, through commissions, to sell them to clients.

To exercise fiduciary duty means that the advisor must recommend the best product options to clients, even if those products result in reduced or zero compensation for the advisor.

Suitability Standard vs. Fiduciary Standard

Financial professionals who aren't fiduciaries are held to a lower set of standards known as the "suitability standard."

This means that the financial advisor needs to have nothing more than an adequate reason for recommending certain products or strategies, based on obtaining adequate information about the investment and the client's financial situation, other investments, and financial needs.

For example, when an advisor has two different, comparable investment vehicles for their client, a fiduciary must choose the one with the lowest fees since this is in the client's best interest.

The non-fiduciary advisor, adhering only to suitability standards, would likely choose whichever investment pays them the highest commission, as long as it's still "suitable" to meet their client's investing needs.


If an advisor states that they have FINRA Series 7, 65, or 66 licenses, this is usually a sign that they don't always act as a fiduciary because they are licensed to sell securities that charge commissions.

Does the Fiduciary Rule Affect Retirement?

Investors who have deepened their understanding of the difference between fiduciary and non-fiduciary advisors may feel that their investments involve a risk that had been present before, but that they were not made aware of.

If the fiduciary rule were still in force, it may have saved many clients from being placed into investments that charged them high commissions or had fees hidden in the fine print, which could cost them thousands in lost retirement savings over time.

One of the key differences between working with a fiduciary advisor and a financial professional bound only by the suitability standard is the depth of conversation each has with their clients.

Before recommending a product or strategy, a fiduciary uses a targeted and prudent method to discover their client's needs and best interests. After presenting recommendations, a fiduciary will thoroughly cover the rationale behind the recommendations and ensure that the client completely understands, leaving no room for misinterpretation or misunderstanding.

A non-fiduciary financial professional is not required to have this same depth of conversation, and any duty they have towards a client's investments may well end as soon as they place a trade or get the client to sign on the dotted line. These types of advisors have no obligation to keep tabs on the client's financial situation or account status going forward.

Tips to Protect Your Portfolio

The best way to protect your portfolio is to learn as much as you can about your own investing needs, understand how to uncover expensive fees and hidden costs on investment products, and know how to spot a fiduciary versus a non-fiduciary advisor.

Fiduciary advisors will still cost you money, but they'll disclose their fees and you'll pay them separately, instead of having fees taken out of the earnings on your investments, such as sales commissions and management fees for some mutual funds.

If you're an experienced investor who is familiar with the investment products you need and know where to look for fees and other investment costs, you may be fine working with a non-fiduciary advisor.

If you aren't interested in the learning curve for many investment products and want to work with a fiduciary, you can:

  • Look for advisors who are registered with state securities regulators or the Securities Exchange Commission (SEC).
  • Check your advisor's client agreement, or just ask them if they're a fiduciary.
  • Locate fiduciary advisors by searching for fee-only advisors. Fee-based financial advisors are bound by the fiduciary standard (any talk of commissions means they're not a fiduciary).
  • Search the Investment Advisors Association (IAA) directory for advisors. Membership in trade associations such as the IAA can indicate that your advisor is acting as a fiduciary.

Non-fiduciary advisors are not necessarily looking to take advantage of their clients, and if you have an advisor you like and trust, have an open discussion of fees and commissions with them, as well as how much those costs are impacting the earnings on your retirement portfolio each year.

You may find it helpful to find out how much you'd pay for a fiduciary advisor and see how that cost stacks up against what you're currently paying.