How Fiduciary Duty Is Defined and Enforced: The Advisers Act, Form ADV and the Two-Hats Problem
"Fiduciary" gets used as a marketing word. It is a legal one, created by statute, enforced by regulators and documented in public filings you can read yourself. Here is where it comes from and how to check it.
Where does a financial advisor's fiduciary duty actually come from, and who enforces it?
From the Investment Advisers Act of 1940, which makes every registered investment adviser a fiduciary to its clients, owing a duty of care and a duty of loyalty across the whole relationship. The SEC enforces it for larger advisers and state securities regulators, in New Hampshire the Bureau of Securities Regulation, enforce it for smaller ones. The duty is documented in Form ADV, a public filing that discloses the adviser's services, fees, compensation and conflicts, which anyone can read on the SEC's Investment Adviser Public Disclosure site. A professional who is not registered as an investment adviser does not owe this duty, whatever the business card says.
The Investment Advisers Act of 1940.
One federal law, two duties, and an interpretation that has not changed in substance in decades.
The Advisers Act requires anyone in the business of advising others about securities for compensation to register, with the SEC or a state, and the courts and the SEC have long read the Act as imposing a fiduciary duty on registered advisers. The SEC's 2019 interpretation set it out plainly: a duty of care and a duty of loyalty, principles-based, following the contours of the relationship the adviser and client agree to.
The duty of care means advice based on a reasonable understanding of your objectives, suitable to you, with best execution when trades are placed, and with monitoring where the engagement is ongoing. The duty of loyalty means the adviser cannot put its own interests ahead of yours and must eliminate material conflicts or disclose them fully and fairly enough that you can give informed consent. Disclosure does not cure every conflict; a conflict so severe that no disclosure would be adequate has to be eliminated.
What the Act does not do is define who may call themselves a financial advisor. The title is unregulated. A broker-dealer representative, held to Regulation Best Interest at the point of each recommendation, can use it. So can an insurance agent. The duty attaches to registration, not vocabulary.
Form ADV: what each part tells you.
The one filing that turns a claim into something you can check.
| Part | What it covers | What to look for |
|---|---|---|
| Part 1 | Registration data: ownership, assets managed, number of clients, affiliations, disciplinary history | Disciplinary disclosures; whether the firm or affiliates are also broker-dealers or insurance agencies |
| Part 2A (the brochure) | Services, fees and compensation (Item 5), conflicts, other financial industry activities, custody, code of ethics | Item 5: fee-only means client fees and nothing else. Any mention of commissions, 12b-1 fees or revenue sharing means it is not |
| Part 2B (the supplement) | The individual who will advise you: education, business background, disciplinary history, other business activities, supervision | Outside business activities, especially insurance sales; who supervises the individual |
| Part 3 (Form CRS) | A short relationship summary required of SEC-registered advisers and broker-dealers | Which capacities the firm offers; whether the same person can act as both adviser and broker |
All of it is free on the SEC's Investment Adviser Public Disclosure site, and state-registered advisers appear in the same database. The brochure has to be delivered to you before or at the time you sign an advisory agreement and offered again every year. If you have never seen your adviser's Part 2A, that is itself a finding.
Why fee-based advice creates a two-hats problem.
The same person, two standards, and a switch you may not see.
A fee-based adviser charges client fees and can also earn commissions on products such as insurance policies or annuities. Where the firm is dually registered, the adviser acts as a fiduciary investment adviser when advising on the managed account and as a broker, under Regulation Best Interest, when selling a commissioned product. The duties are different, the standard switches with the hat, and the switch is rarely announced in the room. Regulation Best Interest is a real standard and a substantial improvement on the suitability rule it replaced; it applies at the time of the recommendation rather than across the relationship, and it requires conflicts to be disclosed and mitigated rather than eliminated.
Form CRS exists partly to make the two hats visible: it has to state which capacities the firm offers and how it is paid in each. The question to ask, for each account and each product, is which capacity the adviser is acting in and which standard applies. If the answer is "both, depending," ask which one governs the recommendation in front of you, and get it in writing.
Fee-only removes the second hat. The adviser is paid by you alone, so there is no capacity in which a product sale pays them. What remains is the conflict inside the fee itself, which a fiduciary has to disclose: an asset-based fee rises with the assets managed, which can color advice about rollovers, mortgage payoff or delaying Social Security. Disclosed in Form ADV, raised in the first conversation, that is the honest version.
Retirement decisions where the standard matters most.
Permanent decisions that interact with each other, and with how the adviser is paid.
- When to claim Social Security, and in what combination for two spouses
- Whether to roll over a workplace plan, stay, or move it to a new employer
- Which account to draw first, and the tax path that follows
- Whether, when and how much to convert to Roth
- How to fund long-term care, and whether a product belongs in the answer
- Whether an income product fills a measured gap or replaces planning that was never done
Kingston households tend to arrive at these decisions from the same direction: careers at employers along Route 125 and in the Exeter and Haverhill corridor, a workplace plan or two, a spouse whose Social Security record differs sharply from the other's, and a house on a lake or pond whose property tax sets the retirement budget. That mix is where the governing standard matters, because each decision changes what an adviser could be paid. For Kingston residents weighing financial advice, retirement planning and retirement income planning are the work; the fiduciary standard is what makes the advice trustworthy enough to act on. KBR Retirement & Investment Solutions serves Kingston from Londonderry, about twenty-five minutes west on Route 111, and by video.
A ten-minute test you can run today.
On your own adviser, with documents you already have.
Pull your most recent statement
Find every fee you paid, including the ones deducted from the account rather than billed. If you cannot find a total, that is the first finding.
Search the SEC's Investment Adviser Public Disclosure site
Look up the firm and the individual. Confirm investment adviser registration. Note any broker-dealer or insurance affiliation in Part 1.
Open Part 2A, Item 5
Read the compensation section and search it for the word "commission." If it appears, the adviser or an affiliate can earn one. Ask why, and on what.
Ask one question in writing
"Are you a fiduciary at all times in our relationship, and does anyone other than me pay you?" A fiduciary who is paid only by you can answer both in one sentence and sign it.
Registered, fee-only, and documented.
An independent registered investment adviser in Londonderry, New Hampshire.
KBR Retirement & Investment Solutions, LLC is registered as an investment adviser with the New Hampshire and Massachusetts securities regulators, receives compensation only from its clients, sells no products and holds no second hat. Bernie Ross, in financial services since 1997, is the only person who advises clients, so the person named in Part 2B is the person you work with for the life of the relationship. The brochure, the fee schedule and every disclosure are linked from Disclosures; the process is described in how the planning process works; and retirement income planning is where the decisions above get made together.
Common questions.
Is fee-only the same as fiduciary?
No. Fee-only describes compensation: the adviser is paid only by clients, with no commissions or product payments. Fiduciary describes a legal duty that comes from registration as an investment adviser under the Investment Advisers Act. The two usually go together but are confirmed separately: compensation in Item 5 of Form ADV Part 2A, fiduciary status in the advisory agreement and on the SEC's Investment Adviser Public Disclosure site.
Can a fee-based advisor still act as a fiduciary?
Yes, in part of the relationship. A dually registered professional can act as a fiduciary investment adviser on an advisory account and as a broker, under Regulation Best Interest, when selling a commissioned product. That is the two-hats problem: the same person operates under two standards. Ask which capacity applies to each account and each recommendation, and confirm it against the firm's Form CRS.
How do I check an advisor's Form ADV?
Go to the SEC's Investment Adviser Public Disclosure site, search the firm or the individual, and open the Part 2 brochure. Item 4 describes services, Item 5 describes fees and compensation, and the sections on other financial industry activities and affiliations describe conflicts. Part 2B is the supplement covering the individual adviser. State-registered advisers appear in the same database.
Who enforces fiduciary duty for a New Hampshire adviser?
Advisers with assets under management below the federal threshold register with the state, so for most independent New Hampshire practices the enforcing regulator is the New Hampshire Bureau of Securities Regulation, with Massachusetts registration overseen by the Massachusetts Securities Division. Larger advisers register with the SEC. Either way the duty itself comes from the Investment Advisers Act and the registration records are public.
What retirement decisions benefit most from fiduciary advice?
The ones that are permanent and interact: when to claim Social Security, whether to roll over a workplace plan, in what order to draw accounts, whether and when to convert to Roth, and how to fund long-term care. Each of these can be shaped by how the adviser is paid, which is why the standard that governs the advice matters more here than in ordinary investment selection.
What this connects to.
Fee-only vs. commission-based retirement advisors
How each compensation model pulls on five retirement decisions.
How to verify a fee-only fiduciary planner
The six-step verification in the public record.
Who is a fiduciary when you roll over a 401(k)?
ERISA's five-part test and PTE 2020-02, explained.
About the author
Bernie Ross is the founder of KBR Retirement & Investment Solutions, LLC, an independent, fee-only registered investment adviser in Londonderry, New Hampshire. He has worked in financial services since 1997 and personally handles the planning and services every client relationship. Read more about Bernie.
This article is general information and is not personalized investment, tax or legal advice. It does not consider your individual circumstances. Consult your CPA or attorney on tax and legal matters. Advisory services are offered through KBR Retirement & Investment Solutions, LLC, a registered investment adviser. Registration does not imply a certain level of skill or training. See Disclosures.
Read the filing, not the business card.
Bring your adviser's brochure if you have one, or we will pull it together. The first conversation costs nothing and commits you to nothing.
