A fiduciary is someone who has legal responsibility for managing another person's money. In the financial industry, this seems rather straightforward, but it can be confusing. Although an adviser may not carry a designation that clearly makes him a fiduciary, such as a Registered Investment Adviser, any adviser acting in the capacity of offering consistent and comprehensive investment advice may be considered a fiduciary. An adviser or agent in the financial industry that simply sells products without offering advice does not have fiduciary responsibility.
Those with fiduciary responsibility are in a position to manage other people's investments. As a result, an adviser is responsible for finding out if a prospective client is suitable for a particular investment. If a client does not meet the suitability requirements, it is up to the fiduciary to inform the client.
Advisers Without Fiduciary Responsibilities
Not everyone in the financial services industry has a fiduciary responsibility to a client. For example, brokers may not have fiduciary responsibility. Fiduciaries organize, design, implement and monitor plans. If your adviser is not functioning in this capacity, it would be difficult to describe the adviser as acting in a fiduciary capacity.
The Five Duties of Fiduciary Responsibility
E.F. Moody lists five duties of fiduciary responsibility. These duties are: utmost care, integrity, full disclosure, loyalty and good faith. A fiduciary should always act in the best interest of the client. Failure to do so means that the adviser has not fulfilled the role of fiduciary. Fiduciary responsibility means that all pertinent information must be disclosed to the client. It is up to a fiduciary to reasonably research, investigate and disclose all material facts.
Fiduciary Ethical Standards
Advisers acting in a capacity of fiduciary responsibility are held to strong ethical standards. An adviser's actions determine whether or not he is acting as a fiduciary to a client. If you are uncertain about whether or not an adviser has a fiduciary responsibility, ask him. It's best to be informed and understand the level of responsibility an adviser has when working with you.