A fiduciary is simply someone who is legally and ethically bound to make decisions in the best interest of the client.
Fiduciaries can be found in many different relationships, such as an investment advisor to an investor, a corporate board member to the shareholders, a guardian to a ward, and a few others.
These individuals, with a fiduciary responsibility, meet what is known as the “Fiduciary Standard,”which requires advisors to operate in “good faith,”disclose any possible conflicts of interest, and advise solely in the client’s best interest.
What Is a Fiduciary Standard?
In the Financial Industry, there are two standards:
The Suitability Standard and the Fiduciary Standard.
1. The Suitability Standard does not require an advisor to advise in the best interest of the client, but rather only insure that it is suitable for the client. This means that someone only under the suitability standard may be able to sell products not in the client’s best interest.
2.The Fiduciary Standard, however, is a legally and ethically bound contract where they must act in the best interest for you, the client.
Traditionally, broker dealers are only required to work under the Suitability Standard, whereas
RIA’s (or Registered Investment Advisors) are required to work under the Fiduciary standard.
- Trustee and beneficiary (the most common type)
- Corporate board members and shareholders
- Executors and legatees
- Guardians and wards
- Promoters and stock subscribers
- Lawyers and clients
- Investment corporations and investors