Fiduciary Standard: What It Requires and Who Must Follow It

The fiduciary standard is a legal obligation requiring a professional to act in your best interest when managing your money or property, placing your interests ahead of their own and exercising the care a competent professional would use in similar circumstances. In the financial world, it binds registered investment advisers, ERISA retirement plan fiduciaries, trustees, and executors. It does not bind every person who calls themselves a “financial advisor.” Knowing which standard governs the person handling your money is one of the more consequential financial distinctions you can make.

What the Fiduciary Standard Actually Requires

Two duties sit at the center of the standard: loyalty and care.

The duty of loyalty means the fiduciary must prioritize your financial interests above their own. If an advisor earns a higher commission by recommending one mutual fund over a cheaper alternative that performs just as well, loyalty requires them to recommend the cheaper option, or at minimum disclose the conflict and get your informed consent before proceeding. This reaches beyond outright theft. It captures the subtler situations where personal incentives could unconsciously shade a professional’s judgment. The Supreme Court, in SEC v. Capital Gains Research Bureau, Inc., described the goal as eliminating or at least exposing “all conflicts of interest which might incline an investment adviser — consciously or unconsciously — to render advice which was not disinterested.”¹

The duty of care requires the fiduciary to act with the skill and diligence a competent professional would use in similar circumstances. For an investment adviser, that means researching your financial situation, risk tolerance, and goals before making recommendations, then monitoring how those investments perform and adjusting as circumstances change. A fiduciary who blindly follows a model portfolio without considering your individual needs, or who fails to review holdings for years, can face legal liability for negligence.²

These aren’t aspirational guidelines. They are enforceable legal requirements that apply to every action the fiduciary takes on your behalf.

Who Is Held to the Fiduciary Standard

Registered Investment Advisers

Registered investment advisers (RIAs) are the main group of financial professionals bound by a federal fiduciary duty. The SEC’s 2019 interpretation confirmed that the obligation under the Investment Advisers Act of 1940 includes both the duty of care and the duty of loyalty, and it applies to the entire advisory relationship, not just individual transactions. That includes ongoing monitoring of your investments and updating recommendations as your circumstances change.²

The statute itself (15 U.S.C. § 80b-6) prohibits advisers from using any scheme to defraud a client, engaging in any practice that operates as fraud or deceit, or trading for their own account against a client’s interest without written disclosure and consent.³ The “fraud or deceit” language is broad enough to capture negligent omissions that mislead clients about material risks, not just intentional misconduct.

RIAs must file Form ADV, a public disclosure document that spells out fee structure, conflicts of interest, disciplinary history, and business practices.⁴ Reading it before you sign anything is one of the better ways to spot a conflict in advance.

ERISA Retirement Plan Fiduciaries

If you have a 401(k) or private pension, the Employee Retirement Income Security Act (29 U.S.C. § 1001 et seq.) imposes fiduciary duties on plan sponsors, administrators, and investment managers.⁵ Under 29 U.S.C. § 1104, these fiduciaries must act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use.”⁶ The standard is sometimes called the “prudent expert” rule because it measures conduct against someone experienced with similar plans, not just an ordinary person doing their best.

ERISA also flatly prohibits certain transactions. Under 29 U.S.C. § 1106, a fiduciary cannot use plan assets for their own benefit, represent a party whose interests conflict with the plan’s, or receive personal compensation from parties doing business with the plan.⁷ The restriction extends further than most people expect, reaching transactions between the plan and any “party in interest” — a category that includes the employer, plan service providers, and their relatives.

One boundary worth knowing: not every person who gives advice about your retirement account is an ERISA fiduciary. A narrower five-part test applies, and in March 2026 the Department of Labor restored that long-standing framework after federal courts in Texas vacated a 2024 rule that would have expanded the definition.⁸ Under the restored test, a person giving retirement investment advice is a fiduciary only if they render advice on a regular basis, pursuant to a mutual understanding that it serves as a primary basis for investment decisions, and the advice is individualized to the plan. Many one-time rollover recommendations fall outside that definition, though Prohibited Transaction Exemption 2020-02 still requires advisors seeking compensation on rollover recommendations to meet impartial conduct standards covering care, loyalty, and reasonable compensation.⁹

Trustees and Executors

Trustees managing trust assets and executors administering estates owe fiduciary duties under state law. The most fundamental rule is separation: trust assets must stay entirely apart from the fiduciary’s personal finances. A trustee who deposits trust funds into a personal checking account, even temporarily and with good intentions, risks removal and legal liability. Once funds are mixed, tracing which dollars belong to the trust becomes difficult, and that ambiguity is exactly what fiduciary law is designed to prevent.

For investment decisions, trustees in nearly every U.S. jurisdiction operate under the Uniform Prudent Investor Act, which requires them to invest and manage trust property with the care, skill, and caution a prudent investor would exercise.¹⁰ The rule evaluates the portfolio as a whole rather than judging individual investments in isolation. A single stock that loses value does not automatically prove a breach if the broader strategy was reasonable when adopted. The framework also pushes toward diversification: putting all trust assets into one stock or asset class creates concentrated risk a prudent investor would avoid.

A separate duty of impartiality requires the trustee to treat beneficiaries fairly. When a trust holds a rental property, the current income beneficiary wants the trustee to maximize rental income, while the remainder beneficiary wants spending on maintenance and improvements that preserve long-term value. The trustee cannot simply favor whichever beneficiary they prefer. They must balance the competing interests in a way that respects the intent of the person who created the trust.¹¹

Trustees also owe beneficiaries an accounting. Under the Uniform Trust Code, adopted in many states, trustees must provide periodic reports detailing transactions, assets, and liabilities. The specifics vary by jurisdiction, but the underlying obligation is consistent: beneficiaries should not have to guess what is happening with their money. Delivering a proper accounting also matters for the trustee’s own exposure, because in many states a report that adequately discloses trust activities starts the clock on the statute of limitations for breach-of-trust claims.

Who Is Not Held to the Fiduciary Standard: Broker-Dealers

Many people assume their stockbroker owes them the same fiduciary duty as an investment adviser. They don’t. Broker-dealers operate under Regulation Best Interest (Reg BI), adopted by the SEC in 2019. Reg BI requires them to act in your best interest at the time they make a recommendation, but imposes no ongoing duty afterward.¹² An investment adviser who recommends a fund has a continuing obligation to monitor that recommendation. A broker-dealer who sells you the same fund has no legal duty to check on it later.

Reg BI requires broker-dealers to satisfy four component obligations:

Disclosure: provide written information about the relationship, fees, and material limitations on services before or at the time of a recommendation.
Care: use reasonable diligence to understand the risks, rewards, and costs of a recommendation and have a reasonable basis to believe it serves your best interest.
Conflict of interest: maintain written policies to identify and disclose or eliminate conflicts. Sales contests, quotas, and bonuses tied to selling specific products within a limited time must be eliminated entirely.
Compliance: enforce written policies designed to achieve all of the above.

Both broker-dealers and investment advisers must deliver a Form CRS relationship summary, a short document of two pages or less, explaining the type of services offered, how the professional is compensated, and any conflicts of interest.¹³ The form includes a required statement: “You will pay fees and costs whether you make or lose money on your investments. Fees and costs will reduce any amount of money you make on your investments over time.” If you haven’t received a Form CRS from your financial professional, ask for one.

Fee-Only Versus Fee-Based

Among advisers who do owe a fiduciary duty, compensation structure still matters. A fee-only advisor earns compensation exclusively from client-paid fees: flat fees, hourly rates, or a percentage of assets under management. They cannot receive commissions, referral fees, or payments from product providers. A fee-based advisor charges client fees but can also earn commissions from selling financial products. That dual compensation creates conflicts the fee-only model eliminates outright. Both may be registered as investment advisers, but disclosure is not the same thing as absence of conflict.

How to Verify Which Standard Applies to You

Before entrusting your money to anyone, verify their registration and check for disciplinary history. Two free public databases make this straightforward:

Investment Adviser Public Disclosure (IAPD): search by name or CRD number at adviserinfo.sec.gov to find registration status, employment history, and disclosures about disciplinary events. The database cross-references FINRA’s BrokerCheck system.¹⁴
FINRA BrokerCheck: for broker-dealer representatives, BrokerCheck reports include customer disputes, regulatory actions, and certain criminal and financial disclosures. Even individuals whose registration ended more than ten years ago remain in the system if they have final regulatory actions, certain criminal convictions, or arbitration awards against them.¹⁵

If a professional claims to be a fiduciary, their IAPD record should show registration as an investment adviser or investment adviser representative. If they are registered only as a broker-dealer representative, they operate under Reg BI rather than a full fiduciary standard. Ask directly: are you a fiduciary at all times when working with me, or only when making specific recommendations? The answer tells you which legal standard protects you.

Consequences When a Fiduciary Breaches the Standard

The remedies depend on where the fiduciary relationship arises.

For investment advisers, the SEC can bring enforcement actions under the anti-fraud provisions of the Investment Advisers Act, seeking civil penalties, disgorgement of profits, and revocation of the adviser’s registration.³ Clients can also pursue private lawsuits seeking compensatory damages for losses caused by the breach.

For ERISA fiduciaries, 29 U.S.C. § 1109 makes the consequences personal: the fiduciary must restore all plan losses caused by the breach, disgorge any profits they made using plan assets, and may be removed. Courts can also impose additional equitable relief.¹⁶ The statute of limitations is the earlier of six years from the breach or three years from when you actually learned about it, though fraud extends the deadline to six years from discovery.¹⁷

For trustees and executors, breach can result in removal, a court-ordered surcharge requiring the fiduciary to personally cover the losses they caused, and in egregious cases involving intentional misconduct, punitive damages. Time limits for filing breach-of-fiduciary-duty claims vary by jurisdiction, generally ranging from two to six years depending on the state and the type of relationship involved.

1
Justia Law. SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180 (1963)
2
U.S. Securities and Exchange Commission. Commission Interpretation Regarding Standard of Conduct for Investment Advisers
3
Office of the Law Revision Counsel. 15 U.S. Code 80b-6 – Prohibited Transactions by Investment Advisers
4
U.S. Securities and Exchange Commission. Form ADV Part 2
5
Office of the Law Revision Counsel. 29 U.S.C. 1001 – Congressional Findings and Declaration of Policy
6
Office of the Law Revision Counsel. 29 U.S.C. 1104 – Fiduciary Duties
7
Office of the Law Revision Counsel. 29 U.S.C. 1106 – Prohibited Transactions
8
U.S. Department of Labor. US Department of Labor Restores Long-Standing Investment Advice Fiduciary Framework
9
U.S. Department of Labor. Amendment to Prohibited Transaction Exemption 2020-02
10
Legal Information Institute. Prudent Investor Rule
11
Legal Information Institute. Fiduciary Duty
12
U.S. Securities and Exchange Commission. Regulation Best Interest – The Broker-Dealer Standard of Conduct
13
U.S. Securities and Exchange Commission. Form CRS Relationship Summary
14
Investment Adviser Public Disclosure. Investment Adviser Public Disclosure – Homepage
15
FINRA. About BrokerCheck
16
Office of the Law Revision Counsel. 29 U.S.C. 1109 – Liability for Breach of Fiduciary Responsibility
17
Office of the Law Revision Counsel. 29 U.S.C. 1113 – Limitation of Actions