Fiduciary Duty
A fiduciary is a person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets for the benefit of the other person, rather than for his or her own profits.

All securities professionals must handle client funds and offer  advice in a professional, ethical and responsible manor. Because of such, they have a higher standard of ethical responsibility than the average person.

if the professorial has a fiduciary duty to the client as in the case of an investment adviser the adviser, must put the interest of their clients above their own.
 

Look Out!
It is vitally important to know that in NO case can an agent ask a client to sign an "affidavit of liability" waiver; meaning that the agent is not responsible for any losses that may occur in the account - better known as an Exculpatory Clause.

Disclosure
Investment advisers MUST disclose the nature of the relationship between the client and the investment adviser. Investment advisers CANNOT participate in, or be compensated (unless there is a specific exemption) by any percentage of gains of a client's portfolio, and the basis of all compensation must be disclosed in the investment advisory contract.
 

Look Out!
There are a few instances in which an investment adviser can benefit from portfolio gains. Advisers can participate in capital gains (receive a performance-based fee), if the client is:
an institutional investor, such as a mutual fund, a private client with a minimum net worth of $2 million or private client with a minimum of $1,00,000 invested with the adviser.

Furthermore, if any change within an Investment Adviser's partnership firm is made (e.g. a change in partners or ownership); clients must be made aware of the change in a reasonable time. It is important to note that this act of notification only applies to partnerships, and not corporations. Also, if the change in partnership could result in new ownership of the business, the IA must have client approval.

In addition, advisers are required to supply clients with account activity statements on a quarterly basis. Lastly, it is illegal for an adviser to have custody of a client's funds or securities, if the Administrator prohibits or restricts such.
 

Exam Tips and Tricks
Custody is defined as having physical possession of funds or securities, though an Administrator may require that an Adviser post a bond when maintaining custody. However, funds and securities can be placed in custodial accounts with broker-dealers instead.



Unlawful Representations

Related Articles
  1. Financial Advisor

    Question the Funds Picked By Your Financial Advisor

    Learn the importance of having a financial adviser whom you can trust and why questioning the funds he selects is part of that process.
  2. Financial Advisor

    5 Traits the Best Financial Advisors Share

    Discover what the best financial advisers share in terms of the traits they possess, and learn what clients value most in their advisers.
  3. Financial Advisor

    5 Traits the Worst Financial Advisors Share

    Learn how the worst financial advisers tend to share common traits, including greed, arrogance, ignorance and being difficult to reach when times are tough.
  4. Retirement

    The Risk of Offering Social Security Advice

    Savvy financial advisers will either need to gain Social Security advice expertise or find a source or partner to provide this vital service to clients.
  5. Financial Advisor

    The Top 5 Reasons Financial Advisors Leave Their Firm

    Understand what creates dissatisfaction between financial advisers and their firms, and learn the top reasons advisers ultimately make the decision to leave.
  6. Financial Advisor

    Losing a Client Is Not Always The End of The World

    Losing a client is never pleasant for a financial advisor, but sometimes this is a better outcome than continuing the relationship.
  7. Personal Finance

    Career Advice: Financial Analyst Vs. Financial Adviser

    Read an in-depth review of the differences between a career as a financial Adviser versus a career as a Financial Analyst, including how to decide which is best.
  8. Personal Finance

    What Is a Fiduciary and Why Does It Matter?

    Not all financial advisers have your best interests at heart. Here's why fiduciary duty is key to building a mutually beneficial adviser-client relationship.
  9. Financial Advisor

    What Is Your Client's Willingness and Ability to Take Risk?

    Financial advisors must carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
  10. Financial Advisor

    Top SEC Exam Hacks for Financial Advisors

    These five tips will help financial advisors pass muster when the SEC comes knocking.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center