The Fiduciary Loophole: Why You Can’t Assume Your Advisor Is Always on Your Side

(What happens when advisors change hats)

“Institutions don’t rely on gut feelings — they rely on process.” - Paul Powell

Most investors assume that if an advisor says they’re a fiduciary, then all of their recommendations are made with the client’s best interest in mind.

But in the financial industry, that assumption often doesn’t hold.

Many advisors are dually registered, meaning they can act in two distinct capacities—one as a fiduciary, and the other as a licensed broker. These roles come with different legal obligations, compensation models, and client protections. And the distinction between them is rarely made clear in the moment advice is being given.

In practice, this means an advisor can be required to act in your best interest one moment, and in the next, be allowed to sell you a commission-based product—without any obligation to explain that the standard has changed.

A Shift in Role, Not in Relationship

The shift is often imperceptible. The conversation feels the same. The setting hasn’t changed. The advisor is the same person you’ve been working with—possibly for years.

But in that moment, their obligations are different.

When acting as a fiduciary, an advisor is legally required to prioritize your interests. When acting as a broker, their obligation is to ensure a product is “suitable,” which is a much lower standard—and one that permits conflicts of interest, including commission-based compensation.

The client may never realize this shift has taken place. But the advisor’s incentives have changed. And incentives influence behavior.

A Familiar Pattern in Corporate Plans

Over the course of my 20-year career advising retirement plan sponsors and overseeing billions of dollars in institutional assets, I saw this dynamic play out repeatedly.

Employees—and even senior leaders such as CFOs and HR executives—would often assume their advisor was serving in a fiduciary capacity. But in many cases, those advisors were also licensed to sell commission-based products and did so as part of their engagement, often without making that distinction transparent.

The structural risk was clear: fiduciary language created the perception of alignment, while the dual registration allowed for recommendations that didn’t require it.

This isn’t a rare exception. It’s a common feature of how advice is delivered in much of the industry.

Clarifying the Relationship

This is not a matter of intent or character. Many advisors who operate under dual registration are skilled professionals who genuinely care about their clients. But the structure matters.

In a structure where the advisor’s compensation can vary depending on the product chosen—or where the legal standard of care can change mid-relationship—the investor bears more responsibility than they often realize.

That’s why it’s important to make role clarity part of the hiring process. Before evaluating investment strategies or portfolio design, it's necessary to understand what capacity the advisor will operate under—and whether that will ever change.

Questions That Provide Clarity

To bring transparency into the relationship, it’s helpful to ask questions such as:

• Are you always acting in a fiduciary capacity for every recommendation and service?

• Are you ever compensated through commissions? If so, in what situations?

• How will I know what role you’re acting in at any given time?

These questions don’t assume anything negative. They simply create a clearer understanding of the structure, which is essential for making informed decisions.

Final Thought

In financial advisory relationships, alignment is not something to infer—it’s something to verify. Role clarity, compensation transparency, and a consistent standard of care are foundational to that process.

To help with that, I’ve created the Financial Self-Defense Checklist—a practical set of 27 questions designed to help investors evaluate advisors based on structure, not personality.

Next Step: Access the Full Framework

Download “Financial Self-Defense”
The complete 27-question checklist that helps you apply the Evidence-Based Hiring™ process with institutional rigor.