Understand The Fiduciary Duty (And Common Misconceptions)

Discover how fiduciary advisers are legally bound to put your interests first, as defined by the Investment Advisers Act of 1940. Learn about their obligations, common misconceptions, and how choosing the right adviser can help safeguard your financial future.

The Investment Advisers Act of 1940—Defining Fiduciary Duties

In the United States, investment advisers and their fiduciary duty to clients were defined by the Investment Advisers Act of 1940, which remains the primary source of regulation of investment advisers. Following are a few excerpts detailing expectations for investment advisers under the act. (Read the full act.)

  • The Act defines an investment adviser as:

    […] any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities […] (§ 80b-2)

  • The Act further specifies that investment advisers, unless otherwise exempted, must be registered with the Securities and Exchange Commission (SEC) to do business:

    […] it shall be unlawful for any investment adviser, unless registered under this section, to make use of the mails or any means or instrumentality of interstate commerce in connection with his or its business as an investment adviser. […]

    An investment adviser, or any person who presently contemplates becoming an investment adviser, may be registered by filing with the Commission an application for registration in such form and containing such of the following information and documents as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors […] (§ 80b-3)

  • Additionally, the Act states that it is unlawful for investment advisers:

    (1) to employ any device, scheme, or artifice to defraud any client or prospective client;

    (2) to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client;

    (3) acting as principal for his own account, knowingly to sell any security to or purchase any security from a client, or acting as broker for a person other than such client, knowingly to effect any sale or purchase of any security for the account of such client, without disclosing to such client in writing before the completion of such transaction the capacity in which he is acting and obtaining the consent of the client to such transaction. The prohibitions of this paragraph (3) shall not apply to any transaction with a customer of a broker or dealer if such broker or dealer is not acting as an investment adviser in relation to such transaction; or

    (4) to engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative. The Commission shall, for the purposes of this paragraph (4) by rules and regulations define, and prescribe means reasonably designed to prevent, such acts, practices, and courses of business as are fraudulent, deceptive, or manipulative.  (§ 80b-6)

  • In 2019, the SEC released an interpretation regarding the standard of conduct for investment advisers under the Investment Advisers Act of 1940. An excerpt from this interpretation states:

    An investment adviser’s fiduciary duty under the Advisers Act comprises a duty of care and a duty of loyalty. This fiduciary duty requires an adviser “to adopt the principal’s goals, objectives, or ends.” This means the adviser must, at all times, serve the best interest of its client and not subordinate its client’s interest to its own. In other words, the investment adviser cannot place its own interests ahead of the interests of its client. This combination of care and loyalty obligations has been characterized as requiring the investment adviser to act in the “best interest” of its client at all times. In our view, an investment adviser’s obligation to act in the best interest of its client is an overarching principle that encompasses both the duty of care and the duty of loyalty. As discussed in more detail below, in our view, the duty of care requires an investment adviser to provide investment advice in the best interest of its client, based on the client’s objectives. Under its duty of loyalty, an investment adviser must eliminate or make full and fair disclosure of all conflicts of interest which might incline an investment adviser—consciously or unconsciously—to render advice which is not disinterested such that a client can provide informed consent to the conflict. We believe this is another part of an investment adviser’s obligation to act in the best interest of its client. […]

What a Fiduciary Adviser Isn't

The law clearly defines the rules that govern Investment Advisers—including the fiduciary standard they are held to. However, some incorrectly perceive the fiduciary standard to mean things it doesn’t. It’s important to recognize a financial professional being registered as an Investment Adviser is not a panacea. For example, see the following common misconceptions below:

  • MISCONCEPTION: A fiduciary must charge the lowest fees. An Investment Adviser must clearly disclose their fees, but they may still charge more than other money managers.

  • MISCONCEPTION: A fiduciary has no conflicts of interest. An Investment Adviser must avoid conflicts of interest and clearly disclose conflicts that may be present—but that doesn’t mean zero conflicts of interest exist.
  • MISCONCEPTION: A fiduciary’s market forecasts will never be wrong. An Investment Adviser’s advice must put client interests first—but they do not have a crystal ball forecasting the market’s every move.
  • MISCONCEPTION: A fiduciary’s strategy will always do better than the market. Like other money managers, an Investment Adviser’s strategy will have periods where it does well and other periods where it underperforms relative to the market or other investment strategies.
  • MISCONCEPTION: A fiduciary will always protect your investments from negative volatility. Market volatility—such as a correction (a short-term decline between -10% and -20%) or a bear market (decline of -20% or more over an extended period)—is impossible to predict with 100% accuracy. Investing in the stock market inherently involves the risk of loss, regardless of the standard of care your professional is held to.
  • MISCONCEPTION: A fiduciary’s advice must always comport with your own views. What clients need and what they want can be two different things. This may mean an Investment Adviser’s advice goes against what you want to do, in an effort to help you stay on track for your longer-term objectives. For example, during short-term market volatility, it may feel more comfortable selling out of the market and holding cash—but your Investment Adviser may counsel you to stay the course so you don’t miss returns when the market bounces higher.

Investors should feel confident their financial professional always puts their interests first. However, not all financial professionals are investment advisers or fiduciaries.

Don’t Let Misconceptions Hold You (or Your Retirement) Back

Understanding what a fiduciary is and isn’t can help you confidently make decisions about your money manager. Fiduciaries are required to put your interests first, but common misconceptions (like those listed above) can cloud the reality and limitations of their responsibilities. Misconceptions about fiduciaries or other kinds of financial professionals aren’t the only things that can derail your retirement. Many of the biggest mistakes we see investors entering—or in—retirement make are based on misunderstandings. Download this guide to learn more about these missteps and how to avoid them in retirement.

Talk to a Fiduciary Adviser Today

Learn why 185,000 clients* trust Fisher Investments to manage their money and how we may be able to help you achieve your financial goals.

*As of 6/30/2025

Want to Learn More? Call Fisher Investments.

(888) 823-9566

Contact Fisher Investments Today