Fiduciary vs. non-fiduciary financial professional vs. self-directed investing: Which path fits your investment goals?

You’re sitting at your kitchen table – or maybe scrolling in bed – with three tabs open. One displays your checking account balance, another is a retirement calculator and the other is titled “Do I need a financial advisor?” You’re trying to make sense of your money and how to best invest it, but the more you research, the more options you uncover: fiduciaries, financial professionals who aren’t fiduciaries and DIY (“do-it-yourself”) investing platforms. There’s a lot to consider, and it can seem overwhelming if you aren’t sure what you’re looking for or don’t fully understand your options.

The truth is that there’s no single “right” way to manage your finances – only the way that fits your financial goals, risk tolerance, time constraints and confidence level. Whether you’re just getting started or looking to shift financial management strategies, this guide will compare and contrast several options – working with a fiduciary, hiring a financial professional who isn’t a fiduciary and investing on your own – so you can move forward with clarity and confidence.

Exploring the role of financial professionals

Financial professionals provide services to help clients manage their money. These professionals might be associated with registered investment advisors, broker/dealers (or both), financial planners or insurance brokers. Some may also work as investment advisors themselves, providing direct advice and guidance on investments. They might analyze clients’ financial situations, research and recommend financial products, manage clients’ investment portfolios, help advise clients on estate planning, or help set financial goals and create financial plans.

You can review the background of financial professionals, including any licenses or certifications they may hold, using FINRA’s BrokerCheck website.

One differentiator to be particularly mindful of when it comes to financial professionals is that some are fiduciaries and some are not. Fiduciaries are held to the highest standard, which requires them to always act in the best interest of their clients. In contrast, financial professionals who are not fiduciaries are not obligated to meet this level of care. For example, if you have a managed account with a registered investment advisor, your financial professional is a fiduciary. If you have a brokerage account, your professional isn’t acting as a fiduciary but is held to the SEC’s Regulation Best Interest.

Definition and responsibilities of a fiduciary

There are many types of fiduciaries. Some are financial professionals, as is the case with financial advisors or professional trustees acting as fiduciaries.

According to the SEC, “the core principle [of fiduciaries] has always been that the adviser must at all times serve the best interest of its client and not subordinate its client’s interest to its own.” That includes:

These responsibilities are designed to protect the principal and ensure transparency. In contrast to financial professionals who may be required to offer only “suitable” recommendations for their clients – brokers, for example – fiduciaries are held to the highest legal standard of care.

Costs and fees of working with a fiduciary

Depending on the service they’re providing, fiduciaries may charge flat fees or hourly rates, or they may charge fees based on your assets under management (AUM). What does that equate to when talking about an investment portfolio? A 1% AUM fee on a $100,000 portfolio equals $1,000 annually. That might sound manageable, but over time, even seemingly small percentages can reduce your overall returns. This is especially true as your account grows, so be mindful of costs and fees when comparing fiduciaries.

Pros and cons of working with a fiduciary

Choosing a fiduciary can provide the peace of mind that your financial advisor is working solely for you – not to earn a commission, make a sale or realize some other incentive. In fact, fiduciaries must disclose how they are compensated and cannot steer clients toward investments that benefit them more than it would benefit their client.

The transparency of the fiduciary-principal relationship can be especially helpful when making complex decisions, such as rolling over a retirement plan, choosing among insurance options or investing a large sum of money. By choosing a fiduciary, you‘re ensuring that the advice you receive is aligned with your goals.

One potential downside to note is the possibility that working with a fiduciary will cost more than working with a non-fiduciary financial professional who may charge commissions on transactions. The asset based fees of a fiduciary are charged even if there’s no activity in the account. There are certainly instances where higher fees simply won’t make sense for your financial needs; in these cases, you may want to pursue another management option, like hiring a financial professional who isn’t a fiduciary.

Definition and responsibilities of financial professionals who aren’t fiduciaries

As mentioned, fiduciaries are obligated to act in the best interest of their clients. Not all financial professionals are fiduciaries, though, which means some providers of financial services are not legally obligated to put their clients’ interests above their own. An example of a financial professional who isn’t a fiduciary is a stockbroker.

It's important to note that the Registered Representatives of a broker/dealer are required to comply with the SEC's Regulation Best Interest, which doesn't make them fiduciaries, but does require them to act in the best interest of their retail customers when making recommendations about securities transactions or investment strategies. This involves providing full and fair disclosure of material facts, exercising reasonable diligence and care, addressing conflicts of interest and complying with applicable laws and regulations. The goal is to ensure that the recommendations made are aligned with the customer's financial needs and interests. While non-fiduciary financial professionals aren’t obligated to act in their client’s best interest, they are still responsible for ensuring their recommendations are suitable for their client’s situation.

Costs and fees of working with a financial professional who isn’t a fiduciary

The costs and fees of working with a financial professional who isn’t a fiduciary may vary. You might encounter fees including but not limited to the following:

Pros and cons of working with a financial professional who isn’t a fiduciary

While not quite a fiduciary standard, Regulation Best Interest does provide clients working with a non-fiduciary some of the same benefits. In addition, using a non-fiduciary financial professional can potentially reduce your costs. For instance, as opposed to paying an ongoing asset-based fee, which you may pay a fiduciary, with a non-fiduciary you may pay by transaction. This could be a less expensive option, especially if you don’t trade much. On the other hand, you won’t necessarily get the ongoing monitoring and rebalancing that a fiduciary would provide with this arrangement.

Exploring the self-directed investing approach

For investors who like to be hands-on with their money, the DIY (or self-directed) approach can be both empowering and cost-effective. Instead of relying on a financial advisor to make decisions, self-directed investors take the lead in researching, selecting and managing their own investments.

The DIY route has become more accessible in recent years thanks to digital trading platforms, mobile investment apps and an abundance of financial education tools. With just a few clicks, investors can open their own investment accounts, buy and sell securities and develop their own portfolios.

Costs and fees of self-directed investing

While DIY investors skip the advisor fees, they may face other costs. These might include the following:

Even with such fees, though, self-directed investing can still be cost-effective. Many online brokerages offer commission-free trades and don’t require minimum account balances. If you go this route, just remember that some costs may be unavoidable – but you’ll likely see savings in other areas.

Pros and cons of self-directed investing

Control is one of the most appealing aspects of DIY, as self-directed investors can build a portfolio that aligns precisely with their personal goals, tolerance for risk, and overall interests and values. For experienced and confident investors, this can be a significant advantage.

As mentioned, another benefit of self-directed investing is the cost savings. Without advisory fees, investors keep more of their returns. Many online brokerages offer low-cost or commission-free trading options, and DIY investors can avoid recurring management fees that might otherwise chip away at long-term gains.

While self-directed investing offers greater control, it can also come with real challenges. Without professional guidance, it can be easier to react emotionally to news that might affect your portfolio. Impulsive decisions – like selling during a market dip after a headline flashes across your smartphone – can lead to avoidable losses.

There’s also the risk of building an unbalanced portfolio. Without an expert to weigh in on your choices, you may unknowingly concentrate too heavily on a single sector or asset type, leaving your investments more vulnerable to market swings. You also run the risk of having more limited investment options as a self-directed investor.

Finally, self-directed investing demands a great deal of time – time spent reading, researching and reviewing performance. For some, the autonomy and lower costs of DIY investing are worth the trade-offs. For others, the complexity and time demands might make professional support the smarter choice.

What to consider when choosing between a fiduciary, a non-fiduciary financial professional and self-directed investing

Each approach to managing your finances – whether hiring a fiduciary, consulting a financial professional who isn’t a fiduciary or doing it yourself – comes with its own level of support, costs and time commitment. Understanding how these options compare can help you choose the best fit for your financial situation.

The bottom line

Whether you’re setting goals for retirement or investing a windfall, the right financial strategy starts with clarity – and ends with confidence. If you want a professional to provide personalized advice with the legal duty to serve your interests, a fiduciary may be right for you. If you‘re cost-conscious but still need targeted guidance, a non-fiduciary financial professional could be a solid fit. And if you thrive on independence and have the time to learn, DIY investing offers the most control.

Depending on their goals, some investors may choose a mix of investment options. Such an approach might involve hiring a fiduciary to invest money earmarked for retirement and using a self-directed investing account to save for shorter-term goals. Whichever path you choose, though, stay informed, keep asking questions and revisit your management plan as your goals evolve. Your future self will thank you.

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