National Association of Personal Financial Advisors (NAPFA) Consumer Education Foundation

What is a Fiduciary?

An investment fiduciary is an individual who has responsibility of the management of assets for others and is therefore in a special position of confidence, reliance, and trust.  The standard of conduct for fiduciaries is considered the oldest, strongest, and most revered standard in law. 

The two most fundamental duties for fiduciaries are loyalty and care.  These duties form the foundation that gives rise to the specific responsibilities of investment stewards, advisors, trustees, and managers established in temporary laws and regulations.  Thus, the fiduciary standard is said to be principles-based, meaning that a fiduciary’s actions must always conform to the guiding principles of loyalty and care.

Duty of Loyalty

The duty of loyalty requires fiduciaries to act in the best of interest of those they serve and to avoid properly manage conflicts of interest.

Duty of Care

The duty of care is focused on prudence and due diligence and includes well documented processes.  It encompasses numerous obligations including that the fiduciary be competent.  This means acting with care, skill, and diligence that a prudent professional would exercise when acting in a like capacity, under comparable circumstances.  A steward who is unable to meet this standard, must delegate responsibilities to a qualified expert.