Who Is a Fiduciary?
A fiduciary must put your interests first.
A fiduciary is someone who must legally put your interest first, even before his or her own interests. A fiduciary financial professional who is advising you about investments, must recommend investments that are best for you. Fiduciary professionals must also tell you about their qualifications and services as well as how they are paid. They must reveal any potential conflicts of interest and any disciplinary actions taken against them.
Legally investment advisors have a fiduciary responsibility to you; brokers do not.
A broker does not have fiduciary responsibility even if they give you financial advice. The law does require they recommend investments that are suitable for you. However, they can also consider the commission they might make from selling an investment or a company bonus for selling particular investments. In other words, while an investment may be suitable for you, it may not be the best choice for you.
How do you know whether your financial professional is a fiduciary or not? First, ask questions – you have the right to know this information. Second, the Securities and Exchange Commission (SEC) requires brokers and other professionals who are not fiduciaries to include the following statement on all marketing materials:
Remember, you have the right to know if your financial professional is a fiduciary.
The table below helps summarize which professionals are fiduciaries.
|Type of Professional
|Are They A Fiduciary?
|Registered Investment Adviser
|NAFPA-Registered Financial Advisor
*Advisors who are affiliated with a broker dealer firm are most likely not fiduciaries. If the client signs a FIRNA binding arbitration agreement – required by almost every broker dealer firm – then their advisor would not be held to a Fiduciary Standard by FIRNA. CFP Practitioners and Financial Planners will be held to a Fiduciary Standard if they are also registered investment advisors or associated with a registered investment advisor.
Source: Modified from “Focus on Fiduciary” from the National Association of Personal Financial Advisors.http://web.extension.illinois.edu/financialpro/fiduciary.cfm
AICPA Professional Code of Conduct
Fiduciary Standard of Care
Fiduciary Standard of Care
A fiduciary has a legal duty to act solely in the best interests of the beneficiary. While an accountant normally is not considered to be a fiduciary to his or her clients, the AICPA Professional Code of Conduct embodies standards of conduct which are closely analogous to a fiduciary relationship—objectivity, integrity, free of conflicts of interest and truthfulness. Accountants who provide audit services cannot be held to a fiduciary standard given their duty to the public.
Courts have found that an accountant can be a fiduciary to his or her client when providing certain professional services including tax services, asset management and general business consulting. Generally, if the following three elements are present in a client relationship, an accountant may be deemed to be a fiduciary to their client: (i) the accountant holds himself or herself out as an expert in an aspect of business, (ii) the client places a high degree of trust and confidence in the accountant and (iii) the client is heavily dependent upon the accountant’s advice. An accountant who provides investment advisory services as a registered investment adviser is a fiduciary to his or her advisory clients.
Prudent Practices for Investment Advisors, authored by the Foundation for Fiduciary Studies with in-depth technical review by the AICPA PFP Executive Committee, sets forth industry best practices for fiduciaries who provide comprehensive and continuous investment advice, including financial advisors, broker-consultants, investment consultants, wealth managers, financial consultants, trust officers and financial planners.
Prudent Practices for Investment Stewards, also authored by the Foundation for Fiduciary Studies with an in depth technical review by the AICPA PFP Executive Committee, was developed specifically for investment stewards such as trustees, investment committee members, attorneys, accountants, institutional investors and others involved in managing investment decision-making.
Legal Memorandums for Prudent Investment Practices was published as a companion to the handbooks. This collection of memoranda highlights the legal bases underlying the practices set out in the handbooks. The memoranda were prepared by the law firm of Reish, Luftman, McDaniel & Reicher and are helpful in understanding the rationale for each of the practices.