Black’s Law Dictionary describes a fiduciary relationship as “one founded on trust or confidence reposed by one person in the integrity and fidelity of another.” A fiduciary has a duty to act primarily for the client’s benefit in matters connected with the undertaking and not for the fiduciary’s own personal interest. Scrupulous good faith and candor are always required. Fiduciaries must always act in complete fairness and may not ever exert any influence or pressure, take selfish advantage, or deal with the client in such a way that it benefits themselves or prejudices the client. Business shrewdness, hard bargaining, and taking advantage of the forgetfulness or negligence of the client are totally prohibited by a fiduciary.
As fiduciaries, financial planners must make fair and complete disclosure of all material facts and must employ reasonable care to avoid misleading their clients. The utmost good faith is required in all their dealings. Simply put, fiduciaries must exhibit the highest form of trust, fidelity and confidence, and are expected to act in the best interest of their clients at all times.
The distinction between a financial planner with a fiduciary interest and a salesperson is crucial. A financial planner, under common law and by some statutes, is a fiduciary. A financial planner must always provide services and advice in the best interests of the client. Whereas salespeople may have their own motives and interests at heart and offer goods and services for a price, a fiduciary must serve the client, if necessary at the cost of the fiduciary’s own interests.
It is generally believed that fiduciaries perform their trades for reasons other than money and feel a sense of responsibility that goes beyond simply making a living. To paraphrase Supreme Court Justice Brandeis: “It is an occupation which is pursued largely for others and not merely for oneself. It is an occupation in which the amount of financial return is not the accepted measure of success.”
Many consumer advocates believe that fee-only planners alone can fulfill a fiduciary duty, because fee-and-commission planners receive commissions from the advice they give.