Fiduciary

What It Means

A fiduciary is a person or firm that has a legal duty to act in someone else's best interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more when handling their money or advising them. In investing, the SEC treats investment advisers as fiduciaries: they must serve their client's best interest at all times and may not put their own interest ahead of the client's. Brokers who recommend investments work under a separate SEC rule, Regulation Best Interest, which also requires them to act in a retail customer's best interest.

How People Say It

• "Is she a fiduciary, or does she earn commissions?"
• "He has to put my interests first, legally."
• "Ask them to say it in writing."

The Breakdown

An example. Sam and Priya want help investing $60,000 from a home sale. They meet two professionals. One works at an investment advisory firm and will manage the money for a yearly fee. The other is a broker who recommends funds and is paid when they buy.

How the two duties differ. The adviser is a fiduciary, and according to the SEC that duty covers the whole relationship: advice in the client's best interest, seeking the best execution for trades, and advice and monitoring over the course of the relationship. Brokers are bound by Regulation Best Interest instead, adopted by the SEC in 2019, which requires acting in the retail customer's best interest and not putting the broker's own interest ahead of theirs. Both have to deal with conflicts of interest, and both must hand over a short Form CRS relationship summary at the start.

Where it goes wrong. Sam assumes anyone called a "financial advisorFinancial advisorA general job title for someone who helps with money and investment decisions; the title alone says nothing about their license, training or duty to you. See more" is a fiduciary for everything. That title isn't a legal category, and the standard depends on the professional's registration and the service they're giving. Priya asks each person directly, reads both Form CRS documents, and writes down how each is paid.

What to watch for

• The title on the card. It doesn't tell you the standard.
• How they're paid. Fees, commissions or both shape the conflicts you should ask about.
• Ongoing care. Ask whether anyone will keep an eye on the account after the first meeting.

Good to Know

The SEC says investment advisers and broker-dealers must give retail investors a Form CRS, a short plain-language relationship summary, at the start of the relationship. Read it before you sign anything. You can look up a professional's registration on Investor.gov's "Check Out Your Investment Professional" tool or FINRA's BrokerCheck. Retirement plans and IRAs can also fall under Department of Labor rules, so ask anyone advising on retirement money which standard they follow for that account.

Related Terms and Categories

• Financial advisor

  A general job title for someone who helps with money and investment decisions; the title alone says nothing about their license, training or duty to you.

• Fee-only advisor

  An advisor paid only by the client, through hourly, flat, retainer or asset-based fees, who takes no commissions on the products they recommend.

• Robo-advisor

  An online investment adviser that uses computer algorithms to build and manage a portfolio for you from your answers to a questionnaire.

• 401(k)

  A retirement plan run through an employer that lets you put part of each paycheck into investments, before tax or as Roth, up to a yearly IRS limit.

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