Fiduciary Duty
A legal obligation to act in the client's best interest.
What is Fiduciary Duty?
The highest standard of care in financial advice. It comprises a duty of loyalty (put the client first, disclose and manage conflicts) and a duty of care (competent, diligent advice). Registered investment advisers owe it under the Investment Advisers Act of 1940.
Fiduciary Duty: a worked example
Between two comparable funds, a fiduciary cannot choose the one paying them more without disclosure and a best-interest rationale.
What is the difference between Fiduciary Duty and Suitability Standard?
Fiduciary = must be the client's best option. Suitability = must merely be appropriate. The gap is where most conflicted advice lives.
Often confused with Suitability Standard - see Fiduciary Duty vs Suitability Standard side by side.
More terms in Regulation & Professional Duty
Suitability Standard
A recommendation must be appropriate given the client's profile.
Regulation Best Interest (Reg BI)
SEC rule requiring broker-dealers to act in a retail client's best interest.
Registered Investment Adviser (RIA)
A firm registered to give advice for a fee, holding fiduciary duty.
Broker-Dealer
A firm that executes trades as agent (broker) or principal (dealer).
FINRA
The self-regulatory organization overseeing broker-dealers.
Securities and Exchange Commission (SEC)
The federal agency regulating securities markets.
SIPC
Insurance against broker failure - not against investment losses.
Securities Act of 1933
The 'truth in securities' law governing new issues.