Most people who call themselves 'financial advisors' in the US are not legally required to put their clients' interests first at all times. A smaller subset is — and the legal, credential, and compensation signals that distinguish the two are public and checkable.
This article walks through those signals so a reader can interview an advisor with the right questions, regardless of which firm they belong to.
The fiduciary distinction
A registered investment adviser (RIA) and the individuals representing it owe a fiduciary duty under the Investment Advisers Act of 1940. A broker-dealer representative is generally held to a 'best interest' standard under Regulation Best Interest, which is closer to but not the same as fiduciary.
The same person can wear both hats. Ask, directly: 'Are you acting as a fiduciary in all of our engagement, in writing, at all times?'
Credentials worth weighing
The CFP® mark (Certified Financial Planner) requires education, an exam, experience, and a fiduciary ethics standard for financial-planning advice. CPA/PFS, ChFC, and CFA serve overlapping but different roles. Letter-soup designations that require only a short course are weaker signals.
Verify any claimed credential at the issuing organization's public directory.
How the advisor is paid
Compensation explains most advisor behavior. Fee-only advisors charge clients directly — hourly, flat-fee, or as a percentage of assets — and accept no commissions. Commission-based advisors are paid by product manufacturers. Fee-based is a middle ground that means some of each.
Fee-only is not automatically best for every client, but it is the structure with the fewest conflicts. For straightforward planning, an hourly or flat-fee fiduciary is often the lowest-cost option.
What to read before you sign
An RIA must file Form ADV with the SEC or state regulator. Part 2 of Form ADV, the firm brochure, discloses services, fees, conflicts, and disciplinary history in plain language. Always read it.
Broker-dealer representatives have a parallel disclosure (Form CRS). Both documents are short, public, and informative.
Red flags
Pressure to roll over a 401(k) into a new product, complex insurance proposals presented as investments, and prospect dinners that conclude with same-night signatures are all signals worth taking seriously. Most reputable advisors will give you a second meeting and time to read the documents.
Check the advisor's record on the SEC's IAPD database and FINRA BrokerCheck before you hire them.