Fiduciary Duty

A fiduciary, or someone with fiduciary duty, is an advisor or entity that must act in the best interest of its client. The term is usually applied to financial situations. For example, if your financial advisory has fiduciary duty, they must put your needs ahead of the needs of their firm or company.

Christian Simmons, writer and researcher for RetireGuide
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APA Simmons, C. (2022, February 3). Fiduciary Duty. RetireGuide.com. Retrieved May 18, 2022, from https://www.retireguide.com/retirement-planning/how-to-find-a-financial-advisor/fiduciary-duty/

MLA Simmons, Christian. "Fiduciary Duty." RetireGuide.com, 3 Feb 2022, https://www.retireguide.com/retirement-planning/how-to-find-a-financial-advisor/fiduciary-duty/.

Chicago Simmons, Christian. "Fiduciary Duty." RetireGuide.com. Last modified February 3, 2022. https://www.retireguide.com/retirement-planning/how-to-find-a-financial-advisor/fiduciary-duty/.

What Is a Fiduciary?

A fiduciary can be a person such as a financial advisor, or an entity such as a bank. What sets a fiduciary apart from a typical financial advisor or other financial service is that they must follow ethical guidelines and put the needs and priorities of their client above all else.

While the term fiduciary can apply to several different areas, it is most commonly associated with the handling of finances. Clients and customers often fear that an entity or firm may not act in the best interests of the person whose money they have been entrusted with.

5 Examples of Potential Fiduciaries
  • Attorneys
  • Guardians
  • Banks
  • Estate Executors
  • Agents

A fiduciary legally must always act in the best interest of the client, even if there is another option that would be more beneficial to the firm or bank in question. A fiduciary could also refer to a trustee who manages a trust, since they act in the best interest of the beneficiary when handling it.

Fiduciary Duties

Fiduciary duties include a legal responsibility to the client. This means that a person or firm who is held to fiduciary standards must always follow ethical practices and make the decision that will best benefit the client.

Other Common Fiduciary Duties
  • Care
  • Loyalty
  • Obedience
  • Performance
  • Communication

A fiduciary is typically entrusted with handling the finances of a client or beneficiary. If they break fiduciary duty and make a decision against the benefit of the client, there can be serious repercussions. According to the Cornell Law School, the beneficiary can be entitled to damages under these circumstances.

What exactly is entailed in fiduciary duty or what to expect can vary on the type of fiduciary. Fiduciary duty can be applied to many financial relationships, from the management of a trust fund to an account with a bank or relationship with a realtor.

Fiduciary vs Financial Advisor

Simply put, a financial advisor can be a fiduciary, but is not required to be. The title of “financial advisor” is a fairly loose term that can apply to a number of different roles and jobs. Just because someone is a financial advisor does not mean they are automatically bound to fiduciary duty.

However, many financial advisors are also fiduciaries. So, they must follow ethical practices and guidelines and only offer you advice and information that is in your best interests. A financial advisor who is not a fiduciary is not held to these standards and does not have to follow any specific rules or practices when offering you financial information or assistance.

How to Find a Fiduciary

When searching for a financial advisor or planning for retirement, be sure to ask and research if they have fiduciary responsibility to their clients. A financial advisor or institution like a firm should tell you whether they act as a fiduciary.

It’s important to make sure that you are aware of an advisor’s status as a fiduciary before you enter into an agreement or trust them with your finances. The National Association of Personal Financial Advisors offers an online database where you can search for advisors in your area.

Last Modified: February 3, 2022

2 Cited Research Articles

  1. Hicks, C. (2022, January 7). What is a Fiduciary Financial Advisor? Retrieved from https://money.usnews.com/investing/investing-101/articles/what-is-a-fiduciary-financial-advisor-a-guide-to-the-fiduciary-duty
  2. Cornell Law School. (n.d.). Fiduciary Duty. Retrieved from https://www.law.cornell.edu/wex/fiduciary_duty