Fiduciary
A fiduciary is a person or organization legally obligated to act in the best interest of another party, putting the client's interests ahead of their own.
Exam Tip
Fiduciary = BEST interest. Suitability = suitable interest. Fiduciary is higher standard.
What is a Fiduciary?
A fiduciary has a legal and ethical obligation to act in the best interest of another person. This is the highest standard of care in financial services.
Fiduciary Duty Components
| Duty | Requirement |
|---|---|
| Loyalty | Put client's interests first |
| Care | Act with skill and diligence |
| Disclosure | Reveal all conflicts of interest |
| Good Faith | Be honest and fair |
| Prudence | Make reasonable decisions |
Fiduciary vs. Suitability
| Standard | Who | Requirement |
|---|---|---|
| Fiduciary | RIAs, CFPs | Must act in client's BEST interest |
| Suitability | Broker-dealers | Must recommend SUITABLE products |
| Best Interest | B-Ds (Reg BI) | Enhanced suitability, disclose conflicts |
Who Are Fiduciaries?
- Registered Investment Advisers (RIAs)
- CFP® professionals
- Trustees
- Attorneys (for their clients)
- CPAs (in advisory capacity)
Common Fiduciary Violations
- Self-dealing (using client funds for personal benefit)
- Excessive fees without disclosure
- Recommending products for higher commissions
- Failing to disclose conflicts of interest
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Related Terms
Investment Adviser
GeneralAn investment adviser is a person or firm that provides advice about securities for compensation, regulated by the SEC (if managing $100M+) or state regulators, and held to a fiduciary standard.
Suitability
GeneralSuitability is the requirement that investment recommendations must be appropriate for a client's financial situation, risk tolerance, and investment objectives.