Fiduciary
Also called Fiduciary duty
A person or firm legally required to act in someone else’s best interest, putting the client’s needs ahead of their own when giving advice.
What it means
A fiduciary holds a duty of loyalty and care toward another person. In finance, registered investment advisers owe their clients a fiduciary duty under federal law, meaning they must give advice in the client’s best interest, avoid or clearly disclose conflicts of interest, and seek reasonable costs. Trustees, executors and some retirement plan officials are also fiduciaries.
Not every financial professional is a fiduciary at all times. Brokers who sell investments follow a separate best interest standard when making recommendations, which is stricter than older suitability rules but differs from a full fiduciary duty. Some professionals act as fiduciaries for some services and not others, so the clearest approach is to ask, in writing, whether they will act as a fiduciary for all advice given.
Example
For example, if two similar funds are available and one pays the advisor more, a fiduciary adviser is expected to recommend the one that serves the client better, such as the lower-cost option, and to disclose any conflict.
How it’s used
- Choosing a financial advisor
- Understanding how an advisor is paid and what conflicts exist
- Serving as a trustee or executor for someone else
Good to know
- Ask whether the advisor is a fiduciary at all times and for all accounts, and get the answer in writing.
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.