financial advisor

If your financial advisor is not acting as a fiduciary for the advice you receive, you have a problem. Recent studies indicate that only one in 10 financial advisors puts clients’ interests first. In other words, only one in 10 financial advisors is acting as a fiduciary for advice given.

Does it really matter whether your financial advisor acts as a fiduciary? It sure does!

The additional value of working with a fiduciary adviser has been calculated at more than 4% per year. Extend that advantage over 20 or 30 years and you have a huge difference in the final value of your portfolio.

Here’s how you can tell the difference between a financial adviser acting as a fiduciary and a non-fiduciary financial advisor.

How an adviser differs from an advisor

I’m not trying to be cute. There really is a difference between financial advisers, spelled with an “er” at the end, and financial advisors, spelled with an “or.”

Financial advisers are employed by Registered Investment Advisers (RIAs) (my firm is an RIA) and are required by the Investment Advisers Act of 1940 to act as fiduciaries for the advice they share with their clients. They are the only financial advisers legally allowed to call themselves financial advisers.

Financial advisors, typically employees of banks, brokerage firms and insurance companies, are considered salespeople by the Act. They are NOT required to act as fiduciaries for the advice they share since that advice should be incidental to the sales process. As a result, most do not act as fiduciaries for the investment advice they provide.

These individuals are not legally able to refer to themselves as financial advisers. Instead, they have decided to refer to themselves using a slightly different spelling of the word, substituting an “or” for an “er.” Nearly everyone seeking investment advice is unaware of the difference.

Should you care whether your financial adviser is a fiduciary? Absolutely. It is the most important decision you will make when hiring an adviser. Here’s why.

Why it’s important that your adviser is a fiduciary

Financial advisers are required to put their clients’ interests first when providing advice. Financial advisors not acting as fiduciaries are not.

Non-fiduciary financial advisors, who typically work for banks, brokerage firms and insurance companies, are salespeople selling their firm’s products and services. As a result, they tend to recommend investments that pay them more, whether or not they are the best options for their clients.

Financial advisers acting as fiduciaries must always put their clients’ interests ahead of their own. They are legally required to recommend the best options available for their clients, regardless of what they are paid.

As shown in the study results cited above, there is a significant difference between the quality of the investment advice that investors receive from fiduciary financial advisers vs. salespeople.

How to tell if your financial advisor is a fiduciary

You are going to have to ask.

Following are three questions you should email to your financial advisor. Accept only written responses to these questions. A financial advisor who is not a fiduciary probably will not respond to your questions via email and instead will call you to try to talk through your concerns. You should take that as a bad sign.

1. Are you a fiduciary for all advice you share with me? If yes, please tell me where in our contract it states that you are a fiduciary.

Non-fiduciary advisors will not state in writing that they are a fiduciary. If you have a fiduciary relationship with your financial advisor, it will say so in your contract.

2. Do you receive any compensation in addition to what I am paying you? If so, from whom and how much?

Fiduciary advisers’ only compensation stream is from their clients. If your advisor is getting paid from somewhere else, then they are conflicted regarding the advice they have given you. In many cases, non-fiduciary advisors receive more in compensation from third parties than from their clients. In these instances, who do you think is more important?

3. Are you dual registered? If so, when you are working with me, are you acting as a broker or investment adviser?

The correct answer to this question is that he or she only acts in a fiduciary capacity when working with you. Dual registration means your financial advisor receives compensation from a brokerage firm and an RIA.

Working with a financial adviser acting as a fiduciary eliminates all conflicts of interest, resulting in higher-quality investment advice. Why would anyone ever purchase investment advice from an advisor who isn’t a fiduciary?


About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs, and many others. Mr. Lawton may be contacted at (414) 828-4015 or

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on nearly a half billion in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at: Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, a plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges, and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice, and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.