A fiduciary duty is the highest standard of care in financial services — a legal and ethical obligation to act solely in the best interest of another party (the client), placing the client's interests above one's own.
Two core elements of fiduciary duty: 1. Duty of Loyalty: Must act in the client's best interest; avoid conflicts of interest; disclose and manage any conflicts that do exist. 2. Duty of Care: Must provide advice that is suitable and appropriate for the client; must have the competence and diligence to do so.
Who has a fiduciary duty: - Registered Investment Advisers (RIAs) under the Investment Advisers Act of 1940. - ERISA plan fiduciaries (plan trustees, plan advisers). - Trustee to trust beneficiaries. - Some attorneys, corporate officers, and directors.
Investment adviser fiduciary duties: - Ongoing — not just at the time of recommendation (unlike Reg BI for broker-dealers). - Must disclose all material conflicts of interest. - Must provide best execution on transactions. - Must not favor the firm's interest over the client's.
Fiduciary vs. Reg BI vs. Suitability:
| Standard | Who | When it applies | |---|---|---| | Fiduciary | RIAs, trustees | Continuously (ongoing relationship) | | Reg BI (best interest) | Broker-dealers | At the time of each recommendation | | Suitability | Broker-dealers (pre-Reg BI) | At the time of each recommendation |
DOL fiduciary rule: The Department of Labor has periodically sought to extend fiduciary duty to all investment advice provided to retirement accounts (IRA, 401k).
> Exam tip: Fiduciary = highest standard. RIAs are fiduciaries; broker-dealers follow Reg BI (best interest) — which is lower than fiduciary. The difference between fiduciary (ongoing) vs. Reg BI (transactional) is the most tested distinction on the Series 65 and Series 66.