Why Fiduciary Standards Matter

Fiduciary Standards entail always acting in your beneficiary's best interest, even if doing so is contrary to yours. For a financial advisor, this may mean recommending a product that results in reduced or no compensation because it's the best option for the client. According to the Securities and Exchange Commission (SEC), which regulates registered investment advisors as fiduciaries, the fiduciary duty also entails:

• Acting with undivided loyalty and utmost good faith
• Providing full and fair disclosure of all material facts, defined as those which "a reasonable investor would consider to be important"
• Not misleading clients
• Avoiding conflicts of interest (such as when the advisor profits more if a client uses one investment instead of another or trades frequently) and disclosing any potential conflicts of interest
• Not using a client's assets for the advisor's own benefit or the benefit of other clients
• Execute orders promptly and at the most favorable terms available, determined through "reasonable diligence"
• Disclose material information
• Charge prices reasonably related to the prevailing market
• Fully disclose any conflicts of interest