Fiduciary vs. broker vs. fee-only

The financial advisor world is full of people with similar-sounding titles and radically different incentives. 'Financial advisor' is not a legal term — anyone can call themselves one. The actual meaningful distinctions are between fiduciary and suitability standards, and between fee-only and commission compensation.

The fiduciary standard

A fiduciary is legally required to act in your best interest, even when that conflicts with their own. If they violate this, they can be sued. Registered Investment Advisors (RIAs) and Certified Financial Planners (CFPs) working in a fiduciary capacity operate under this standard. This is the highest level of legal duty.

The suitability standard

Traditional brokers — including many people at big-name 'wealth management' firms — only have to recommend products that are 'suitable' for you. A product can be suitable and also be much worse than a simpler, cheaper alternative the advisor won't mention because they don't get paid on it. This is completely legal. Most of the worst consumer financial products on the market are sold under the suitability standard.

Compensation models

• Fee-only: you pay the advisor directly (hourly, flat-fee, or % of assets). No commissions from products. Best alignment with your interests.
• Fee-based: sounds the same but isn't. 'Fee-based' advisors charge you fees AND take commissions on products they sell. Mixed incentives.
• Commission-only: paid entirely by the products they sell you. Incentive structure is directly against your interest on many decisions.