The anti-fraud provisions of the Investment Advisers Act of 1940 and Uniform Securities Act impose a duty on IAs to act as fiduciaries in dealing with clients and prohibit fraudulent behavior without exception. As the Securities and Exchange Commission states, advisers "have an affirmative obligation of utmost good faith and full and fair disclosure of all material facts to their clients, as well as a duty to avoid misleading them."

A fiduciary is required to act in the best interests of the person he or she is working with. Trustees, pension administrators, custodians and investment advisers are all prohibited from engaging in any fraudulent, deceptive or manipulative behaviors when working with beneficiaries or clients.

When working with clients, investment advisers and investment adviser representatives have a much stronger fiduciary responsibility than broker-dealers and their registered representatives.

Under the Investment Advisers Act of 1940, the IA's obligations under the fiduciary role include:

  • The duty to be loyal to the client
  • The duty to have a reasonable and objective basis for investment recommendations
  • The duty to make sure that any investment recommendations are appropriate considering the client's financial objectives, needs and situation
  • The duty to ensure best execution for securities transactions, if the IA can direct such transactions


Look Out!
The IA\'s primary fiduciary obligation is to put the client\'s (or beneficiary\'s) needs before his or her own. When faced with a question on this topic, answers such as "ensuring the account does not lose money" or "investing in a fund desired by the trustee" are incorrect, since performance guarantees are prohibited and the IA\'s obligation is to the beneficiary, not the trustee.

Other Prohibited Behaviors

Related Articles
  1. 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.
  2. Retirement

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.
  3. Retirement

    What You Should Know About the New Fiduciary Rule

    These key questions and answers clarify the DOL's new fiduciary rule and how it impacts individual investors saving for retirement.
  4. Financial Advisor

    Why Realtors Have Fiduciary Responsibilities

    Find out why real estate agents are considered to have a legal fiduciary responsibility to uphold the best interests of their clients.
  5. Financial Advisor

    What You Need To Know About The Fiduciary Standard

    The financial industry has spent a boatload of money to prevent more stringent fiduciary requirements. Here’s what’s at stake.
  6. Financial Advisor

    How SEC and DOL Fiduciary Standards Could Differ

    SEC fiduciary standards could differ from what the DOL has proposed, causing more confusion about the impact of the rule.
  7. Retirement

    Which Firms Are Sticking with Fiduciary Rule Changes Anyway?

    The Fiduciary Duty Rule is under scrutiny again and may be scrapped altogether, but that doesn't mean all financial firms will abandon the standard.
  8. Personal Finance

    6 Things That Make a Fiduciary Advisor Different

    Here are six ways fiduciary financial advisors are more beneficial to their clients.
  9. Financial Advisor

    Coverage of Fiduciary Liability Insurance

    As fiduciaries, retirement plan sponsors have tremendous personal liability exposure. Find out how fiduciary liability insurance can protect personal assets.
  10. Tech

    Fiduciary Rule Impact: How it's Already Being Felt

    The fiduciary rule will be announced today but it's impact is already being felt. Here's how.
Frequently Asked Questions
  1. I'm about to retire. If I pay off my mortgage with after-tax money I have saved, I can save 6.5%. Should I do this?

    Only you and your financial advisor, family, accountant, etc. can answer the "should I?" question because there are many ...
  2. My wife and I both converted our Traditional IRAs to Roth IRAs over a decade ago and have invested the maximum allowed each year since. We're buying our first home soon. Do we both qualify for one-time, tax-free, $10,000 distributions?

    You and your spouse each qualify for a penalty-free distribution of up to $10,000 for the purchase, acquisition or construction ...
  3. Is a Thrift Savings Plan (TSP) a qualified retirement plan?

    Take advantage of the government's retirement plan for employees with the Thrift Savings Plan. As with a 401(k), contributions ...
  4. Who manages the assets in a Roth 401(k) account?

    Learn how to personally manage the assets in your Roth 401(k) plan and determine the best options available to help meet ...
Trading Center