Understanding Fiduciaries vs. Brokers

“What was a trailblazing idea then has since become the guiding principle behind everything we do at Altman Advisors.”

In 1991, our Chairman, Sheldon Altman, made a bold and forwardthinking decision—to build a fee-based advisory service to fully align with his clients' best interests. What was a trailblazing idea then has since become the guiding principle behind everything we do at Altman Advisors.

Navigating financial advice requires understanding the key differences between fiduciaries and broker-dealers, who diverge significantly in their responsibilities and approach to client service. A fiduciary is legally bound to prioritize a client’s best interest, placing the client’s needs above personal gain. In contrast, a broker-dealer primarily facilitates securities transactions and must ensure their recommendations are suitable—but not necessarily optimal—for the client. A financial adviser who is a fiduciary is required by law to put your interests first, which is widely considered the gold standard in financial advice.

Fiduciaries, such as Registered Investment Advisers (RIAs), operate under the Investment Advisers Act of 1940 and are held to a fiduciary standard. This means they must act with loyalty, disclose all conflicts of interest, and manage assets prudently. They are obligated to choose investments that align with your financial goals, even if those choices are less profitable for them. Often, their role extends beyond investment advice to include ongoing financial planning and personalized guidance to help meet long-term objectives.

Broker-dealers, on the other hand, are regulated by the SEC and FINRA under the Securities Exchange Act of 1934. They follow a suitability standard, and since 2020, have also been subject to Regulation Best Interest (Reg BI). This regulation requires broker-dealers to act in the client’s best interest when making recommendations, but it still allows for more flexibility—and potential conflicts—compared to fiduciary duty.

Broker-dealers may recommend suitable investments that also benefit their firm, such as high-commission products, as long as these conflicts are disclosed. Their primary focus tends to be on executing trades and selling financial products rather than providing ongoing, holistic advice.

Compensation structures also vary. Fiduciaries typically operate on a tiered fee-based model, charging a percentage of assets under management. This model aligns their compensation with your financial success and discourages the promotion of unnecessary products.

Broker-dealers, by contrast, are often paid through commissions tied to specific trades or investment products. This can introduce conflicts of interest—for instance, a broker might recommend a higher-fee mutual fund because it pays a larger commission, even when a lower-cost alternative might be more appropriate for the client.

In terms of services, fiduciaries typically offer comprehensive and continuous financial guidance, including portfolio management, retirement planning, tax strategy, and other elements of long-term planning. Broker-dealers are generally more transaction-focused,

helping clients buy and sell securities with limited advisory services unless they are also licensed as investment advisors. Some firms are dual-registered, which means they may switch roles depending on the service provided. In such cases, it’s important to clarify in what capacity the adviser is acting so you understand the standard of care you're

receiving.

Ultimately, fiduciaries are required to put your interests first, making them a strong choice for those seeking transparent, goal-focused financial advice. Their legal duty and client aligned operating model offer greater confidence and clarity as you plan for your financial future.