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

You’re sitting at your kitchen table – or maybe scrolling in bed – with three tabs open: one with your checking account balance, another with a retirement calculator and a third titled “Do I need a financial advisor?” You’re trying to make sense of your money and how best to invest it, but the more you research, the more options you uncover: fiduciaries, financial professionals who aren’t fiduciaries and self-directed 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 goals, risk tolerance, time constraints and confidence level. Whether you’re just getting started or rethinking your approach, 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.

What is a financial professional?

Financial professionals provide services to help clients manage their money. These professionals might be associated with registered investment advisors (RIAs), broker-dealers (or both), financial planners or insurance professionals. 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 siteOpens overlay.

One key differentiator to be particularly mindful of: some financial professionals are fiduciaries, and some are not, depending on the services they provide and the capacity in which they’re acting. Fiduciaries are held to a legal duty to 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 an RIA, your financial professional is typically acting as 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 (Reg BI)Opens overlay.

What is a fiduciary?

“Fiduciary” can apply to many roles. 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 client and ensure transparency. In contrast to professionals operating under other standards (for example, broker-dealer professionals must comply with the SEC’s Reg BI), fiduciaries have a duty to put the client’s interests first.

Fiduciary costs and fees

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). For example, a 1% AUM fee on a $100,000 portfolio is $1,000 a year. 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.

Fiduciary pros and cons

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. Fiduciaries must disclose conflicts of interest and how they’re compensated, and they have a duty to put the client’s interests first.

The transparency of the fiduciary-client 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 little 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.

What is a non-fiduciary financial professional?

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 registered representative of a broker-dealer. These professionals are required to comply with the SEC’s Reg BI, 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. Reg BI requires broker-dealers to consider a retail customer’s investment profile as part of making a recommendation.

Non-fiduciary costs and fees

The costs and fees of working with a financial professional who isn’t a fiduciary may vary. You might encounter fees such as:

Non-fiduciary pros and cons

While not quite a fiduciary standard, Reg BI 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 you may pay to a fiduciary, with a non-fiduciary, you may pay per 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.

What is self-directed investing?

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 self-directed investing 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.

Self-directed investing costs and fees

While self-directed 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.

Self-directed investing pros and cons

Control is one of the most appealing aspects of self-directed investing, as 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 self-directed 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 may also have less access to personalized guidance, planning tools or certain services available through an advisory relationship.

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 self-directed investing are worth the trade-offs. For others, the complexity and time demands might make professional support the smarter choice.

Choosing an approach that fits your goals

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.

Compare your options: Fiduciary vs. non-fiduciary vs. self-directed investing

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 personalized advice with a duty to put your interests first, a fiduciary may be a fit. If you’re cost-conscious and want more targeted help, a non-fiduciary financial professional may work. If you prefer full control, self-directed investing may be a better match.

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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