Fiduciary Duty and Application

The fiduciary standard represents the highest ethical obligation a CFP professional owes to clients. In October 2019, CFP Board implemented a strengthened Code of Ethics and Standards of Conduct that expanded the fiduciary duty to apply "at all times" when providing Financial Advice. Understanding this standard is essential for CFP exam candidates because it forms the foundation of professional conduct requirements.

What Is Fiduciary Duty?

A fiduciary is a person who acts on behalf of another and is legally and ethically bound to put the other person's interests first. For CFP professionals, the fiduciary duty means placing the client's interests ahead of their own when providing Financial Advice. This is not merely a suggestion—it is a binding obligation enforced by CFP Board.

Exam Tip: The CFP Board's Code and Standards states that a CFP professional must act as a fiduciary, and therefore act in the best interest of the Client, at all times when providing Financial Advice. This "at all times" language is critical and distinguishes the CFP standard from other regulatory frameworks.

The Three Components of Fiduciary Duty

CFP Board's fiduciary duty comprises three distinct obligations that work together:

Duty of Loyalty

The duty of loyalty requires CFP professionals to place the client's interests above their own. This means:

• Seeking the client's best interest when providing Financial Advice
• Avoiding conflicts of interest that could compromise objectivity
• Disclosing material conflicts when they cannot be avoided
• Managing conflicts to prevent harm to the client
• Never subordinating the client's interests to your own financial gain

When a conflict exists, the CFP professional must disclose it sufficiently so the client can make an informed decision. Disclosure alone is not enough—the conflict must also be managed appropriately.

Duty of Care

The duty of care requires CFP professionals to act with the competence and diligence expected of a qualified professional. This includes:

• Understanding products and strategies before recommending them
• Investigating investment options thoroughly
• Applying professional judgment based on qualitative and quantitative analysis
• Considering the client's complete financial picture when making recommendations
• Staying current with knowledge and skills through continuing education

CFP Board requires 30 hours of continuing education every two years, including 2 hours of ethics training, to maintain competence.

Duty to Follow Client Instructions

CFP professionals must follow reasonable, lawful instructions from clients. This duty includes:

• Executing trades as directed (when applicable)
• Implementing agreed-upon strategies
• Respecting client preferences and constraints
• Documenting client instructions and decisions

When client instructions conflict with the CFP professional's recommendations, the professional should document their advice and the client's decision to proceed differently.

When Does Fiduciary Duty Apply?

The fiduciary duty applies at all times when providing Financial Advice. Understanding what constitutes "Financial Advice" is critical for the exam.

Financial Advice includes:

• Recommendations regarding the development or implementation of a financial plan
• Advice on the value or advisability of investing in, purchasing, holding, gifting, or selling Financial Assets
• Investment policies, strategies, portfolio composition, or management of Financial Assets
• Recommendations on selecting and retaining other persons to provide financial or professional services
• Exercise of discretionary authority over client Financial Assets

Financial Advice does NOT include:

• General educational information provided to an audience
• Information provided to the public that is not personalized
• Administrative tasks such as completing paperwork for a new client
• Seminars on general investment topics (e.g., "How Mutual Funds Work")

Conflict of Interest Management

CFP Board requires a two-step approach to conflicts of interest: disclose and manage.

Step 1: Disclose Material Conflicts

A CFP professional must provide written disclosure of all material conflicts of interest. Disclosure must be:

• Sufficiently specific so the client understands the conflict
• Provided timely (at or before the time of engagement for Financial Planning; before or when providing Financial Advice)
• In writing for Financial Planning engagements

Common Conflicts Requiring Disclosure:

Exam Scenario: Samuel, a CFP certificant, owns shares of a mutual fund in his daughter's education account. If he recommends this fund to a client, must he disclose his ownership? Yes—even though the ownership is in his daughter's account, it represents a potential conflict that must be disclosed.

Step 2: Manage Conflicts

Disclosure alone is insufficient. CFP professionals must also manage conflicts to ensure they do not compromise the advice provided. Management strategies include:

• Structuring compensation to minimize conflicts
• Establishing policies that prioritize client interests
• Avoiding recommendations when conflicts cannot be adequately managed
• Obtaining informed consent when proceeding despite a conflict
• Documenting the conflict, disclosure, and management approach

The Fiduciary Standard vs. Suitability Standard

The fiduciary standard is often compared to the suitability standard that applies to broker-dealers under FINRA rules. Understanding this distinction is essential for the CFP exam.

Key Differences:

• Suitability: A recommendation must be appropriate for the client based on their investment profile (age, risk tolerance, objectives, etc.), but it does not need to be the best option available
• Fiduciary: The recommendation must be in the client's best interest, meaning the CFP professional must prioritize what is optimal for the client over what is merely acceptable

The SEC adopted Regulation Best Interest (Reg BI) in 2019, which raised the standard for broker-dealers to a "best interest" requirement. However, CFP Board's fiduciary standard remains distinct because it applies "at all times" when providing Financial Advice, not just at the point of recommendation.

CFP Board's 2025 Policy Priority: Universal Fiduciary Standard

In September 2025, CFP Board released six public policy priorities, with making fiduciary duty a legal requirement for all financial advisors as the top priority. CFP Board's CEO Kevin Keller stated that these priorities "reflect our unwavering commitment to the public interest and to advancing the financial planning profession."

Currently, the fiduciary standard is mandatory only for:

• CFP professionals (enforced by CFP Board)
• Investment Advisers (enforced by the SEC under the Investment Advisers Act of 1940)

CFP Board advocates for legislation that would extend the fiduciary duty to all individuals who provide financial advice, regardless of their regulatory classification.

Key Exam Concepts

Remember these critical points for the CFP exam:

1. "At all times": CFP professionals owe fiduciary duty whenever providing Financial Advice, not just during formal Financial Planning engagements
2. Three components: Duty of loyalty, duty of care, and duty to follow client instructions
3. Disclosure is not enough: Conflicts must be both disclosed AND managed
4. Written disclosure required: For Financial Planning engagements, conflict disclosure must be in writing
5. Best interest vs. suitable: The fiduciary standard requires what is best for the client, not merely what is appropriate
6. Educational presentations exempt: General educational seminars do not trigger fiduciary duty because they are not personalized Financial Advice