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Regulations and Requirements - Fiduciary Liability

A fiduciary is someone who agrees to act in the best interests of another person. In a financial relationship, a fiduciary manages assets for the benefit of the other person rather than for his or her own profit.

Children or elderly people typically need a fiduciary. The person who looks after the assets on the other's behalf is expected to act in the best interests of the person whose assets they are in charge of. This is known as "fiduciary duty".

Types of fiduciaries

  • Trustees of individual trusts
  • Pension and retirement fund trustees
  • Custodians
  • Corporate directors and officers
  • Investment advisors

Fiduciary duties
A fiduciary is held to a higher standard than a professional because of the responsibility to care for and handle the funds and affairs of a trust beneficiary, retirement plan participants, shareholders and others.
  • Investment Advisers Act of 1940 ­- Holds investment advisers and investment adviser representatives as fiduciaries to a higher standard than broker-dealers and their registered representatives.
    • Obligations:
      • Duty to be loyal to the client.
      • Duty to have reasonable and objective basis for investment recommendations.
      • Duty to be sure investment recommendations are appropriate considering client's financial objectives, needs and situation.
      • Duty to ensure best execution for securities transactions if IA can direct such transactions.
  • Uniform Prudent Investor Act - Sets out investment responsibilities for a fiduciary.
    • Obligations:
      • Duty to diversify.
      • Duty to invest according to suitable level of risk.
      • Duty to avoid unnecessary expenses.
      • Duty to seek advice when necessary.
  • Employee Retirement Security Income Act of 1974 (ERISA) - An individual or organization exercising discretionary authority or control over management of any type of employee benefit plan is deemed a fiduciary.

Consumer Protection Laws

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