The fiduciary standard was established as part of the Investment Advisors Act of 1940. Since then, it has morphed and is now considered a legal requirement, ensuring that all fiduciary financial professionals put their clients' best interests ahead of their own. This means that a financial advisor who operates under a fiduciary standard must disclose any conflicts of interest and must not engage in any practices that would be detrimental to their clients' financial well-being.
The fiduciary standard is considered to be the highest standard of care in the financial industry. It is often contrasted with the suitability standard, which only requires that financial professionals recommend products or services that are suitable for their clients, but not necessarily in their best interest. Under the suitability standard, advisors are not required to give the best advice - only advice that could be seen as suitable for their client's financial position.
The fiduciary standard applies to financial professionals such as investment advisers, financial planners, and broker-dealers. These professionals are required to disclose any potential conflicts of interest to their clients and to act in their clients' best interests at all times. This includes providing transparent and accurate information about investment products and services, and avoiding any self-dealing or insider trading.
The fiduciary standard has been the subject of much debate in recent years. Some argue that the standard is too onerous and costly for financial professionals to comply with, while others argue that it is necessary to protect consumers from harmful financial advice or products.
In 2016, the Department of Labor (DOL) issued a fiduciary rule that expanded the definition of who is considered a fiduciary under the Employee Retirement Income Security Act (ERISA). However, the rule was delayed and later repealed by the Trump Administration, but a new version is expected to be issued by the Biden Administration.
In summary, the fiduciary standard is a legal term that refers to the duty of trust and loyalty that financial professionals owe to their clients. It requires these professionals to put their clients' best interests ahead of their own when providing financial advice or making investment decisions. The standard is considered to be the highest standard of care in the financial industry and is the subject of much debate in recent years. Click here to get connected with a fiduciary advisor near you.