Fiduciary adviser or broker: what the person across the table owes you

An investment adviser is a fiduciary to its clients. The duty comes from the antifraud provisions of the Advisers Act (section 206, 15 U.S.C. 80b-6) as the Supreme Court read them in SEC v. Capital Gains Research Bureau (1963), and the SEC restated its contours in a 2019 interpretation: a duty of care and a duty of loyalty, together requiring the adviser to serve the client's interest at all times, to provide advice in the client's best interest, to seek best execution, to monitor as agreed, and to make full and fair disclosure of every material conflict, obtaining informed consent.

Two honest limits on that sentence. First, disclosure does a lot of work: a conflicted adviser who fully discloses the conflict and gets consent can still act, so the duty is not a ban on conflicts, it is a ban on hidden ones. Second, the duty follows the scope of the relationship the parties agreed to; an adviser hired for a one-time plan does not owe you perpetual monitoring.

A broker-dealer recommending securities to a retail customer must comply with Regulation Best Interest (17 CFR 240.15l-1), in force since June 30, 2020. Reg BI requires the recommendation to be in the customer's best interest at the time it is made, without placing the broker's interest ahead, and imposes four component obligations: disclosure, care, conflict-of-interest procedures, and compliance.

The practical differences from the adviser standard: Reg BI attaches recommendation by recommendation rather than continuously, imposes no ongoing monitoring duty unless the broker agrees to one, and lives comfortably with commission compensation, which is the broker model's defining feature. Neither standard is a guarantee of good advice; they differ in when they apply and what has to be disclosed or mitigated.

Many large firms are dually registered, and many individuals hold both an adviser registration and a broker license. The same person can owe you a fiduciary duty on your advisory account in the morning and Reg BI on a brokerage recommendation in the afternoon. The SEC considers which hat is being worn a facts-and-circumstances question, which is precisely why the useful move is to pin it down yourself: ask, account by account, "are you acting as my investment adviser or as a broker for this recommendation, and will you confirm that in writing?" A firm's Form CRS must disclose which registrations it holds, on page one.

The two terms sound interchangeable and are opposites in the way that matters. Fee-only means the adviser is paid solely by clients: a percentage of assets, an hourly rate, a flat or subscription fee, and nothing from anyone else. That is the definition professional bodies like NAPFA use for membership, and NAPFA members must sign a fiduciary oath and may not accept commissions. Fee-based means fees plus something else, almost always commissions on some products, which reintroduces the third-party compensation the fee-only model exists to exclude.

Neither label appears on Form ADV as such, but the underlying facts do: each firm checks its compensation arrangements on Item 5.E, and the firm pages on this site render those checkboxes as sentences. A firm that checks only fee arrangements looks fee-only; a firm that also checks commissions is fee-based no matter what the marketing says, and the right follow-up is the one from the fees page: which products, and how much.