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Advisors as Fiduciaries

By The Institute on April 28, 2020

By Arthur Laby

This Article provides a sustained account of advice giving as a fiduciary activity, and it demonstrates that the dominant approach to defining fiduciary relationships is flawed. Leading academic commentators assert that fiduciary relationships only arise when one party has discretion over the assets or affairs of another. Yet, many advisors—such as lawyers, doctors, and investment professionals—lack
discretion over a principal’s assets or affairs but are nonetheless considered fiduciaries by the courts. The dominant academic view of fiduciary relationships is therefore incomplete because it does not account for purely advisory relationships

Drawing on interdisciplinary literature on trust and the normativity of advice, the Article demonstrates that imposing a fiduciary duty on certain advisors is not only consistent with contemporary judicial practice, but it is also normatively correct. In addition, the Article builds a framework for assessing which advisors should be subject to fiduciary responsibility. Not everyone who provides advice should be subject to fiduciary liability. Thus, the Article proposes factors to determine which advisors should be subject to fiduciary duties.

This Article addresses a matter of widespread importance. Most people rely on fiduciary advisors to aid with critical decision-making. Yet, the dominant academic approach would wrongly denude these
advisors of fiduciary responsibility merely because they lack discretionary authority over their clients’ assets or affairs. This result would have adverse consequences for the advisory relationships on which most people rely.

Read Document

Dan Moisand

 

Dan Moisand is a nationally recognized fiduciary fee-only financial planner, an Institute Real Fiduciary™ Advisor and Chair-elect of the CFP Board.

The Institute has enshrined the ‘Moisand Rule’ on fiduciary practices. It is basic and is more important today than ever: “You have to avoid conflicts. If I avoid a conflict, I don’t worry about it.”

Watch the video of Moisand speaking here.

Bob Veres

 

Bob Veres is a long term observer of financial planning. His Newsletter, “Inside information” Is a staple of leading planners. In the May edition he writes about fiduciary and the Institute.

"But a much bigger point is that the fiduciary standard—as Knut Rostad of the Institute for the Fiduciary Standard has pointed out—has been determined by the Supreme Court (1963 ruling) to be at the very heart of the Investment Advisers Act of 1940. It is the foundation of what it means to be an RIA registered with the SEC instead of a tipster or a tout."

- Bob Veres, Parting Thoughts ... The SEC's Own Compliance Culture

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