Fiduciary

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 23, 2022

Fiduciary Definition

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.

Fiduciary Relationships

  • 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

Fiduciary Duty FAQs

What is a Fiduciary?

A fiduciary is simply someone who is legally and ethically bound to make decisions in the best interest of the client.

What are some roles of a Fiduciary?

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.

How do Fiduciaries act in a client's best interest?

Individuals with 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.

How does the Suitability Standard differ from the Fiduciary Standard?

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.

What is the Fiduciary Rule?

The Fiduciary Rule is the legal underpinning that defines fiduciary duty. This rule was issued by the Department of Labor and later overturned by Fifth Circuit Court of Appeals in 2018. The DOJ has hopes of finding a compromise.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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