Can You Trust Your Financial Advisor?

Whether you can trust a financial advisor depends partly on what type of professional you are working with and which standard applies to the advice you receive. Registered investment advisers generally owe clients a fiduciary duty, while broker-dealers are subject to the SEC’s Regulation Best Interest when making recommendations to retail customers. Retirement advice can also trigger separate fiduciary requirements under federal pension law. Knowing those differences, along with an advisor’s fees, conflicts of interest and disciplinary history, can help you evaluate who is handling your money.

If you’re looking for a financial advisor, SmartAsset’s free tool can match you with options who serve your area.

What Happened to the Fiduciary Rule?

Back in 2015, former President Barack Obama called for stronger protections for people receiving investment advice about their retirement savings. The Department of Labor subsequently issued a fiduciary rule in 2016 that broadened the circumstances in which financial professionals providing retirement investment advice would be treated as fiduciaries under federal law.

That rule did not survive. On March 15, 2018, the 5th U.S. Circuit Court of Appeals held that the Labor Department had exceeded its authority and vacated the rule. The court’s mandate took effect later that year, restoring the earlier regulatory framework for determining when someone provides fiduciary investment advice under the Employee Retirement Income Security Act (ERISA).

The Labor Department then adopted Prohibited Transaction Exemption 2020-02, which took effect in 2021. The exemption can allow investment-advice fiduciaries to receive certain forms of compensation that might otherwise create a prohibited transaction, provided they satisfy applicable conditions such as impartial conduct standards, conflict-management requirements and disclosures.

Another major change arrived in 2024, when the Labor Department issued the Retirement Security Rule in an effort to broaden the definition of an investment-advice fiduciary again. Federal courts blocked the rule that year, and final judgments later vacated both the rule and associated amendments to prohibited transaction exemptions. In March 2026, the Labor Department formally restored the longstanding 1975 five-part test for determining whether someone is an investment-advice fiduciary under ERISA.

Under that test, all five requirements generally must be met, including that investment advice is provided on a regular basis, pursuant to a mutual agreement or understanding, serves as a primary basis for investment decisions and is individualized to the retirement investor’s needs. As of 2026, the Labor Department says it has no current plans for another rulemaking to replace that framework.

What Did the Fiduciary Rule Aim to Do?

The proposed reform would have imposed a fiduciary duty more broadly on financial professionals providing compensated investment advice involving retirement accounts. The goal was to reduce situations in which compensation arrangements or other conflicts could influence advice about IRAs, 401(k)s and other retirement assets.

The regulatory landscape today is more complicated than a simple fiduciary-versus-suitability distinction. Registered investment advisers generally owe their advisory clients a fiduciary duty under the Investment Advisers Act. That duty includes duties of care and loyalty and applies across the advisory relationship.

Broker-dealers operate under a different federal standard. Since 2020, the SEC’s Regulation Best Interest has required brokers to act in a retail customer’s best interest when making covered securities recommendations and not place their own interests ahead of the customer’s. Reg BI includes disclosure, care, conflict-of-interest and compliance obligations. However, this recommendation-based standard is not identical to an investment adviser’s fiduciary duty across the advisory relationship.

Some financial professionals are registered as both brokers and investment adviser representatives, meaning the standard that applies can depend on which capacity they are acting in for a particular service or account. This makes it important to understand whether you are receiving brokerage services, advisory services or both.

The earlier fiduciary-rule debate was partly driven by concerns about conflicts involving retirement investment advice. A 2015 study by the White House Council of Economic Advisers estimated that conflicted advice involving retirement savings was costing IRA investors billions of dollars annually. ¹

Wall Street’s Objection to the Fiduciary Rule

The plan to eliminate the loopholes that allow for conflicts of interest between brokers and their clients provoked a predictable backlash. Under the fiduciary rule, firms that thrive on the high-fee commission model would have had to change their ways and compete with the low-cost index funds of the world.

The Department of Labor estimated in April 2016 that the rule could have cost firms up to $31.5 billion over 10 years: “The Department estimates that the cost to comply with the final rule and exemptions will be between $10.0 billion and $31.5 billion over 10 years with a primary estimate of $16.1 billion, mostly reflecting the cost incurred by affected fiduciary advisers to satisfy relevant consumer-protective PTE conditions.”

The industry argued that the rule could have opened up the floodgates for lawsuits, drove up costs for consumers and caused clients with limited savings to be dropped by firms. In addition, the industry, which argued that the rule was complex and costly, contended that it may have also limited clients’ investment options.

How to Tell If You Can Trust Your Financial Advisor

A professional title alone doesn’t tell you which legal standard applies. One of the first steps is to determine whether the person and firm are registered as an investment adviser, broker-dealer or both, and what role they will have when working with you.

Registered investment advisers generally have a fiduciary duty to their advisory clients. Brokers must comply with Regulation Best Interest when making covered recommendations to retail customers. Someone who works in both capacities may be subject to different requirements depending on the service being provided.

Also be cognizant of advisors’ certifications. An advisor who is a certified financial planner (CFP), for instance, must follow CFP Board’s fiduciary standard whenever the CFP® professional provides financial advice to a client. That standard requires duties of loyalty and care, as well as following lawful client instructions.

You can also verify an investment professional’s background rather than relying solely on what they tell you. Investor.gov’s professional-search tool can direct you to the Investment Adviser Public Disclosure database (IAPD) or FINRA’s BrokerCheck. These resources can show registration status, employment history and certain disciplinary or customer-dispute information.

For a registered investment adviser, review Form ADV for information about the firm’s business, fees, conflicts of interest and disciplinary history. Registered investment advisers and broker-dealers that work with retail investors also generally provide Form CRS, or a relationship summary, explaining their services, fees, conflicts, disciplinary history and applicable standard of conduct.

Finally, ask directly: “Are you acting as a fiduciary when advising me, and will you confirm that in writing?”

You can also ask how the professional gets paid, whether compensation changes depending on the product recommended, what conflicts of interest exist and whether the advisor receives commissions, referral payments or other third-party compensation. Fiduciary status does not necessarily mean that no conflicts exist; what matters is the standard that applies and how those conflicts are disclosed and managed.

Even after fees, financial advice can make a difference. See how your net worth might stack up with and without an advisor using this calculator. 

Bottom Line

The federal fiduciary landscape has changed considerably since the Labor Department’s 2016 rule was struck down. Investment advisers generally remain subject to a fiduciary duty, brokers are governed by Regulation Best Interest when making covered recommendations to retail customers, and federal retirement law uses a separate five-part test to determine when investment advice creates ERISA fiduciary status. Before trusting someone with your money, verify the professional’s registration and disciplinary history, review Form ADV or Form CRS when applicable and understand how the person is compensated.

Tips for Vetting a Financial Advisor

• In order to vet a financial advisor, you’ll need to find one first. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Do your research. Look at a financial advisor’s qualifications. Find out if he or she is registered with either the SEC or the state securities agency. Check to see if the firm or advisor has any disclosures.
• Make sure you understand the fees. Ask for a full disclosure of the financial advisor’s fees. This is also available on the firm’s Form ADV (SEC-filed paperwork).

Photo credits: ©iStock.com/sanjeri, ©iStock.com/AndreyKrav, ©iStock.com/Georgijevic