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. Financial Advisor

    Identifying a Breach of Fiduciary Duty

    Pension fund managers are not the only entities owing a fiduciary duty to stockholders. Corporate officers and directors have key fiduciary roles.
  2. 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.
  3. Retirement

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. Financial Advisor

    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.
  10. Financial Advisor

    Blurred Lines: Whom Can You Trust for Financial Advice?

    The question of whether your financial advisor is truly a fiduciary isn't always clear. What to ask – and what to be careful about signing.
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