Despite the fact that mutual funds’ past performance is not a good predictor of future returns, mutual fund companies routinely advertise the returns of their best funds.

This paper was presented as part of a conference on fiduciary law at Boston University on October 29, 2010.

The SEC, authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act, should impose a fiduciary duty on all brokers (and similar financial professionals) who suggest specific securities to clients.

An investment adviser’s fiduciary duty derives primarily from common law and federal statutory law. There are two basic duties, those of care and loyalty. Some authorities list additional duties such as a duty of obedience, a duty to act in good faith, and a duty of disclosure.