Dan Shaw at Financial Planning covered NAPFA's new definition of fiduciary, which says that when the word is applied to a NAPFA member it explicitly means the adviser takes no commissions or sales charges. Critics argued the change would confuse investors further, since many already struggle with what fiduciary means at all. Dan asked me how the term plays out with real clients.
I told him about a client I recently took on who had left a brokerage firm specifically in search of fiduciary advice. One of my first orders of business was spending half an hour walking her through the difference between a fee-only planner and a fee-based planner, which is what our firm is, since we do some commission business alongside advisory work. She wanted fiduciary advice. She did not know that both models can deliver it, or where the differences actually sit.
Now there is a new NAPFA definition in the mix. It will not make that conversation shorter.
I have yet to meet a client who understood what it means for an adviser to be a fiduciary without a detailed explanation. That is the real problem, and a trade association redefining a word for its own members does not solve it. What solves it is an adviser who explains, in plain language, how they are paid, when their interests could diverge from yours, and how they manage that.
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