When managing your finances, preparing for retirement, or planning your estate, trust isn’t just nice to have—it’s essential. That’s where fiduciaries come in. Whether you’re seeking investment support or arranging for future care and asset distribution, understanding the role of a fiduciary can help you make more informed and confident decisions.

In this guide, we explore what a fiduciary is, what fiduciaries are obligated to do, and how to choose the right one for your situation.

What is a fiduciary?

A fiduciary is a person or organization who has a legal and ethical obligation to act in your best interest. It’s a relationship built on trust, where the fiduciary must put your needs and interests above their own. 

Fiduciaries are often professionals like financial advisors or attorneys, but they can also be individuals appointed in a personal capacity, such as a family member named executor of a will. Yet, what makes someone a fiduciary isn’t just the role they play. It’s the standard of care and loyalty they’re required to uphold.

Types of fiduciaries

Fiduciaries serve in a wide range of roles, depending on the nature of their relationship with those they serve. Different types of fiduciary relationships include guardians and wards, lawyers and clients, boards and shareholders, and financial advisors and clients. 

Some of the more familiar fiduciary roles arise in an estate planning context. These representatives are typically appointed through legal documents such as wills, trusts, or powers of attorney and are responsible for making decisions on behalf of others:

• Trustees: A trustee manages a trust in accordance with its terms for the benefit of one or more beneficiaries. A trustee’s fiduciary responsibilities extend to how they handle investments, pay taxes, and distribute assets.
• Guardians or conservators: These representatives are appointed to act on behalf of a minor or an incapacitated adult and are bound to a fiduciary duty when making personal, medical, or financial decisions.
• Executors: Sometimes referred to as personal representatives, executors are responsible for settling an estate after someone dies. They act as fiduciaries when identifying and securing assets, paying debts and taxes, and distributing assets as outlined in a will.

In the financial services space, fiduciaries help manage and oversee investment portfolios, retirement accounts, and broader financial planning. Key examples include:

• Registered investment advisors (RIAs): Regulated under the Investment Advisors Act of 1940, RIAs are held to a fiduciary standard by law. This means they must always act in the client’s best interest, disclose potential conflicts of interest, and provide transparent advice.
• Certified financial planners (CFPs): Under the CFP Board’s Code of Ethics and Standards of Conduct, CFPs are bound by a fiduciary duty that requires them to prioritize their clients’ financial well-being, put their clients’ interests above their own, avoid or disclose conflicts of interest, and exercise diligence and care in providing financial advice.
• Retirement plan sponsors: If you participate in a workplace retirement plan like a 401k, the plan sponsor or investment committee that oversees that plan has a fiduciary responsibility under the Employee Retirement Income Security Act (ERISA) to make informed investment selections, manage plan costs, and act solely in the interest of plan participants. Learn more here. 

Conspicuously missing from this list are financial advisors. That’s because not all financial advisors are fiduciaries. Some are only required to adhere to the “suitability standard”.

What is the suitability standard?

Unless a financial advisor or wealth manager holds an RIA, CFP, or similar designation, they may not be bound by fiduciary duties. As a result, non-fiduciary financial advisors may choose to recommend products or investments that provide them with the highest fees, even if those aren’t the best fit for their clients. On the flip side, the recommendations provided by fiduciary financial advisors must always serve the client’s financial goals—rather than being based on the commissions or firm incentives they may earn.

Core fiduciary responsibilities

Fiduciaries don’t just manage money or maintain accurate records. They operate under a legal framework that requires them to meet specific obligations, all designed to protect the interests of those they serve. That said, different laws set out different types of fiduciary obligations. Some of the more common fiduciary duties include:

• Duty of loyalty: Fiduciaries must avoid conflicts of interest and act solely in the best interests of their clients and beneficiaries. For example, a trustee can’t benefit personally from trust assets unless explicitly allowed under the trust’s terms. Similarly, a fiduciary advisor should not recommend a financial product because it pays them a commission, unless the payment is fully disclosed and the product truly serves the client’s goals.
• Duty of care: This obligation requires fiduciaries to make well-informed decisions. Whether managing investments, reviewing legal documents, or making medical choices on someone’s behalf, a fiduciary must exercise sound judgment, diligence, and experience. For instance, a financial fiduciary should research investment options carefully before making recommendations, just as a guardian should seek appropriate medical input before making health care decisions.
• Duty of full disclosure: Fiduciaries are required to communicate openly and honestly. This means disclosing any fees, compensation structures, conflicts of interest, or material information that could affect the individual they represent. Transparency is a core pillar of fiduciary relationships.

You can dive deeper into the roles and obligations of a fiduciary financial advisor here.

The fiduciary standard in practice

To understand how the fiduciary duty works in practice, it can be helpful to consider some examples. For instance, a financial advisor bound by fiduciary duty may recommend a low-cost index fund because it aligns best with a client’s long-term goals, even if the investment generates less revenue for the firm. Similarly, a trustee administering a special needs trust must confirm that disbursements don’t jeopardize a beneficiary's eligibility for government assistance and that they are made strictly according to the trust’s guidelines. These responsibilities aren’t just good practice. They’re legally enforceable.

Legal consequences of a breach of fiduciary duty

Because fiduciaries are entrusted with significant responsibility, failure to uphold their obligations can lead to serious legal consequences. While legal outcomes may vary depending on the nature and severity of the breach, they can include civil lawsuits brought by beneficiaries or clients, court orders to repay losses or correct mistakes, professional sanctions such as disciplinary action or loss of licensure, and removal from the role.

A breach of fiduciary duty occurs when a fiduciary fails to act in the best interest of the person they serve by:

• Acting in their own self-interest
• Neglecting responsibilities or making uninformed decisions
• Failing to disclose conflicts of interest or important information
• Violating the terms of a will, trust, or agreement
• Mismanaging assets

Even if the fiduciary did not intend to do harm, negligence or poor decision-making can still result in a breach if it causes damage to the client or beneficiaries. To manage these risks, fiduciaries generally rely on established policies and procedures, commit to ongoing and transparent reporting, and consult independent experts as needed.

How to choose the right fiduciary 

Choosing a fiduciary is both a practical and deeply personal decision. You’re not only entrusting someone with your finances or legal matters. You’re giving them authority over decisions that affect your well-being and legacy. For these reasons, it’s essential to vet your fiduciary carefully, whether it’s a financial advisor, attorney, executor, or trustee.

In advance of appointing a fiduciary, interview at least two candidates. You can ask for referrals from a trusted friend or family member. When assessing their skills, consider asking the following questions:

• “Are you legally bound to a fiduciary standard?”
• “How are you compensated, and do you receive commissions?”
• “Can you provide references or examples of past fiduciary roles?”
• “How do you manage potential conflicts of interest?”
• “What’s your process for making important decisions?”

Checklist for choosing a fiduciary

• Are they legally obligated to act in your best interest?
• Do they have relevant credentials, such as CFP, RIA, or chartered professional accountant (CPA)?
• Are they registered with the Securities and Exchange Commission (SEC)?
• Have they served as a fiduciary before?
• Are they financially responsible and trustworthy?
• Can they handle the complexity and time commitment involved?
• Will they remain impartial if family dynamics get complicated?

Read this article for more suggestions on the criteria you can use to evaluate each candidate.

Benefits of working with a fiduciary 

When you work with a fiduciary, you aren’t just hiring a service provider. You’re engaging a trusted partner who is committed to protecting your interests. This translates into a range of benefits, including:

• Legal accountability: Unlike non-fiduciary professionals, fiduciaries must act according to a clearly defined legal standard. This helps prevent conflicts of interest and gives you legal recourse if something goes wrong. It’s an extra layer of protection for your financial well-being.
• Knowledgeable advice: Fiduciaries must offer specialized guidance, providing recommendations that aren’t swayed by commissions, sales targets, or third-party incentives. Their focus is on doing what’s best for you, not what’s easiest or most profitable for them.
• Confidence: Knowing your fiduciary is legally and ethically bound to act in your best interest allows you to focus on what matters—whether that’s enjoying retirement, caring for loved ones, or building your legacy.

Common myths about fiduciaries

Although the term “fiduciary” is often heard, it’s not an obligation that’s well-understood. To bring greater clarity, let’s clear up common myths:

Myth 1: All financial advisors are fiduciaries

As we mentioned earlier, only registered investment advisors, certified financial planners, and similarly designated advisors who operate under fiduciary mandates are legally bound to put your interests first. Others may follow the suitability standard, meaning they must recommend investments that are suitable, but not necessarily those that are the best for your needs or the lowest cost.

Myth 2: Fiduciaries are only for the wealthy

Anyone with assets, children, or a need for financial guidance can benefit from a fiduciary relationship. Estate planning, investment management, and even elder care often require fiduciary oversight, regardless of wealth. Plus, the clarity and protection that fiduciaries offer can benefit individuals and families at every income level.

Myth 3: Fiduciaries can’t be family members

In many estate plans, family members are appointed as executors, guardians, or trustees. While professional fiduciaries may possess specialized knowledge, a trusted family member can serve effectively, especially with proper guidance and legal support. 

Myth 4: Fiduciary relationships are permanent

In many cases, fiduciary roles can be revoked or reassigned. Some even expire after a particular duty is fulfilled. 

Regulations governing fiduciaries

In 2016, the Department of Labor (DOL) introduced the fiduciary rule, which would have required all financial professionals offering advice on retirement accounts to follow a fiduciary standard. The rule was designed to eliminate conflicts of interest and enhance transparency, especially around fees and commissions. However, the rule was overturned in 2018 following legal challenges, leaving a patchwork of standards in its place.

Today, fiduciary standards are governed by several agencies:

• Securities and Exchange Commission (SEC): Under Regulation Best Interest (Reg BI), broker-dealers must act in the best interest of their clients when recommending securities, but this standard is still considered less stringent than a full fiduciary duty.
• Financial Industry Regulatory Authority (FINRA): While FINRA requires that investment recommendations be “suitable”, it does not mandate that they be optimal or conflict-free.
• Department of Labor (DOL): As the regulatory authority overseeing employment standards, the DOL continues to push for a stronger regulatory framework for retirement plan advisors under ERISA.

Understanding these nuances can help you evaluate whether a financial professional is truly working in your best interest. For added certainty, take time to read the Form CRS Relationship Summary that financial professionals are required to share with clients, outlining the nature of the proposed relationship, the services offered and their associated fees, and any conflicts of interest.

The bottom line

Fiduciaries play an essential role in protecting your interests—financially, legally, and personally. Whether you’re appointing someone to oversee your estate, manage investments, or act on your behalf in times of need, choosing a fiduciary offers confidence [MR1] and legal assurance that your goals will be honored.

From legal accountability to specialized advice, the benefits of working with a fiduciary are clear. But not all professionals are held to this high standard, so it’s worth asking the right questions and choosing someone committed to serving your best interests.

If you’re ready to appoint a fiduciary or would like to learn more about the fiduciary role, contact a fiduciary financial advisor at Wealth Enhancement to get started

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

^#2025-9322