What's the actual difference between a fiduciary and a broker?
This is one of those questions that sounds simple but gets complicated fast — mostly because the industry has worked hard to blur the lines.
The short version
A fiduciary is legally required to act in your best interest. A broker is held to a lower standard called "suitability" — meaning they need to recommend something that's appropriate for you, but not necessarily the best option available.
Why this matters in practice
Imagine two advisors recommending a mutual fund. The fiduciary recommends the fund with the lowest cost that fits your strategy. The broker might recommend a similar fund that pays them a higher commission — and that's perfectly legal under the suitability standard, as long as the fund is "suitable" for your situation.
The difference in fees might seem small. Over 20 or 30 years, it's not.
Questions to ask your current advisor
- Are you a fiduciary at all times? Some advisors are fiduciaries in some accounts but brokers in others. Ask for clarity.
- How are you compensated? Fee-only advisors are paid directly by clients. Fee-based advisors may also receive commissions. Commission-only brokers are paid entirely by product companies.
- Will you put it in writing? A real fiduciary won't hesitate to confirm their obligation in writing.
Our position
CAP is structured as an independent RIA. Every advisor on our platform is a fiduciary, all the time, in every account. We think that should be the minimum standard in this industry — and we're surprised it isn't.
If you're not sure whether your current advisor is acting as a fiduciary, ask them. If the answer isn't clear, that tells you something.