What Does It Mean to Work with a Fiduciary Financial Advisor?

If you have started looking for a financial advisor, you have probably seen the word "fiduciary" on more than one website. It sounds reassuring, but many people evaluating an advisor are not sure what it actually means, or whether the person across the table from them is required to live up to it.

The short version: a fiduciary is legally required to act in your best interest. That sounds obvious, but it is not the standard every financial professional operates under. Understanding the difference can change how you interpret the recommendations you receive, and it is one of the most important questions to ask before you hand someone your financial life.

• A fiduciary standard requires an advisor to put your interests ahead of their own, at all times, not just during certain conversations.
• A "suitability" standard, which applies to some brokers and insurance producers, only requires that a recommendation be reasonably suitable, not necessarily the best option available.
• How an advisor is paid (fee-only, fee-based, or commission) can create incentives that are worth understanding upfront.
• You can and should ask directly: "Are you a fiduciary 100% of the time?"
• Registered Investment Advisers, like Cannon Advisors, are held to a fiduciary standard under the Investment Advisers Act of 1940.

A fiduciary duty is a legal obligation. When an advisor acts as a fiduciary, they are required to act in your best interest, disclose conflicts of interest, and avoid using your assets or information to benefit themselves. This standard traces back to the Investment Advisers Act of 1940, which governs how Registered Investment Advisers (RIAs) operate.

In our experience, most clients assume this level of accountability applies to anyone who calls themselves a financial advisor. It does not. "Financial advisor" is not a protected title. Someone can use that label while operating under a very different set of rules.

We believe this is not just a technical or legal distinction, it shapes the actual guidance you get. A fiduciary is required to consider your full financial picture: your goals, your tax situation, your risk tolerance, and how a recommendation fits with everything else going on in your financial life. That is closer to what most people picture when they imagine working with a trusted advisor.

Without that obligation, financial guidance can end up serving two masters: your goals, and the compensation structure behind the product being recommended. A properly structured financial plan should be built entirely around the first one.

Before committing to work with anyone, we believe these questions belong in every first conversation:

• "Are you a fiduciary 100% of the time?" Some professionals are fiduciaries only in certain contexts (for example, when managing an investment account) but not in others (such as when recommending an insurance product). Ask specifically whether the fiduciary duty applies across all the advice they give you, not just some of it.
• "How are you compensated?" Fee-only advisors are paid directly by clients, typically as a percentage of assets managed, a flat fee, or an hourly rate, and do not earn commissions on products they recommend. Fee-based advisors may charge fees and also receive commissions. Commission-based professionals are paid when a product is sold.
• "Do you earn commissions on any products you might recommend to me?" This surfaces potential conflicts of interest directly.
• "Can you provide that in writing?" A true fiduciary should be comfortable putting their standard of care in writing, not just stating it verbally.

• Assuming the title "financial advisor" guarantees a fiduciary standard. It does not.
• Only asking about fiduciary status in the context of investment management, and not asking about insurance or annuity recommendations too.
• Focusing solely on performance history and skipping questions about compensation structure and conflicts of interest.
• Treating investment and tax planning as separate conversations, when in our experience the two are deeply connected and should be coordinated, not handled by disconnected professionals who are not talking to each other.

Cannon Advisors is an SEC Registered Investment Adviser, and we operate as a fiduciary. That means the questions above are ones we expect to be asked, and we are glad to answer them directly, in writing, and without hedging. If you are evaluating advisors and want to have that conversation, schedule a call with us and ask us the same questions outlined here.

Is every financial advisor a fiduciary? No. "Financial advisor" is not a protected or regulated title, so the term alone does not tell you what standard of care applies. Ask directly whether the fiduciary duty applies at all times.

What is the difference between fee-only and fee-based? Fee-only advisors are compensated solely by fees paid directly from clients, with no commissions. Fee-based advisors may charge fees and also receive commissions on certain products, which can introduce a conflict of interest worth understanding.

Does a fiduciary standard guarantee better investment performance? No standard of care can guarantee performance or outcomes. What a fiduciary standard does require is that recommendations be made in your best interest rather than the advisor's.

Can someone be a fiduciary in one part of their business and not another? Yes. This is why it is important to ask whether an advisor is a fiduciary 100% of the time, across every type of recommendation, not only in certain accounts or contexts.

Why does Cannon Advisors bring up tax coordination when discussing fiduciary duty? In our experience, the burden of coordinating investment and tax decisions often falls on the client, which usually means the left hand does not know what the right is doing. A fiduciary who considers your full financial picture, including tax coordination, is better positioned to act in your best interest.

What should I do if I am not sure whether my current advisor is a fiduciary? Ask them directly: "Are you a fiduciary 100% of the time?" and ask for that in writing. If you are not comfortable with the answer, it may be worth a second opinion.

Are Registered Investment Advisers automatically fiduciaries? RIAs are held to a fiduciary standard under the Investment Advisers Act of 1940, which requires acting in the client's best interest.

• SEC, Investment Adviser Regulation