Why should your care if your broker has a fiduciary duty on your behalf?

The definition of fiduciary duty from http://definitions.uslegal.com/b/breach-of-fiduciary-duty/ :


A fiduciary duty is an obligation to act in the best interest of another party. For instance, a corporation's board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust's beneficiaries, and an attorney has a fiduciary duty to a client.


A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence, and reliance on the fiduciary to exercise his discretion or expertise in acting for the client. The fiduciary must knowingly accept that trust and confidence to exercise his expertise and discretion to act on the client's behalf.


When one person does agree to act for another in a fiduciary relationship, the law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the client, or from acting for his own benefit in relation to the subject matter. The client is entitled to the best efforts of the fiduciary on his behalf and the fiduciary must exercise all of the skill, care and diligence at his disposal when acting on behalf of the client. A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client.

After reading this, wouldn’t you want your advisor to act in a fiduciary duty? Currentl investment advisors must adhere to a fiduciary duty for their clients, but broker-dealers follow a much less stringent suitability rule.

A fiduciary duty requires advisors to act in the best interest of the client and fully disclose all material conflicts of interest. The suitability rule requires broker-dealers to fit investment products to a client’s needs, timeline and risk tolerance.


Some broker-dealers believe instilling the ‘fiduciary duty’ would limit the amount of products they can sell. I believe the sticking point for these is choice of product. What will instilling the fiduciary duty mean for selling a client a product where the fiduciary makes a 5% commission, when they could have helped the client acheive the same objective with a 1% commission. Also many opponents don’t want the excessive regulation that will be required to ensure compliance to the rule that will ensue.

As a financial planner, I believe that I should always put the interests of my client first. It is my duty to help them achieve their goals in the best, most efficient way possible. With or without government regulation, Everyone who is handling money for someone else should think of themselves as a fiduciary and always treat that client the way they would want to be treated.