Definition
Fiduciary duty is the legal requirement for certain financial professionals to act in their clients' best interests, putting client interests ahead of their own. Registered Investment Advisers (RIAs) are held to fiduciary standard. This contrasts with the 'suitability' standard for broker-dealers, requiring only that recommendations be suitable, not necessarily optimal. Fiduciary duty includes obligations of care (prudent advice), loyalty (no conflicts of interest), and disclosure. Understanding whether your advisor is a fiduciary impacts the advice you receive.
Example
A fiduciary advisor must recommend a low-cost index fund if it's best for the client, even if they'd earn more commission on an expensive mutual fund. A non-fiduciary could recommend the expensive fund if it's 'suitable.'
FAQ
What is Fiduciary Duty?
A legal obligation to act in a client's best interest when managing their assets.
Why is Fiduciary Duty important?
Fiduciary Duty helps investors evaluate regulatory and make more informed decisions.