Series 66

Conflicts of Interest - Fiduciary Duties

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

All securities professionals have fiduciary responsibility to handle client funds and advice in a professional, ethical and responsible manner. If you are a securities professional, you are a fiduciary. This means you are held to a higher standard of ethical responsibility than the average person is.

Simply put, fiduciaries must put the interests of their clients above their own. Fiduciary duty covers agents, investment advisors, investment advisor assistants, issuers and broker-dealers.

Look Out!
It is very important to know that under no circumstances can an agent ask a client to sign an affidavit of liability waiver - better known as an Exculpatory Clause - which says that the agent is not responsible for any losses that may occur in the account.

When it comes to working with clients, investment advisors and investment advisor 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 in the role of fiduciary include the following:
  • 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 the beneficiary\'s) needs before his or her own. When faced with an exam 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.




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