What duties does a financial advisor owe a client?

To help you make wise investments, your financial advisor should provide you with sound and ethical assistance. Financial advisors, also known as fiduciaries, have a duty to their clients known as a fiduciary duty. Breaking this duty can deprive a client of potentially millions of dollars and also violate a number of financial laws.

U.S. News and World Report explains what fiduciary duty involves. Citing the Cornell Law Dictionary, the article describes a fiduciary duty as consistently acting in the best interest of a beneficiary and giving the client the highest standard of care. The best interests of a client may even run contrary to those of the advisor. For example, some advisors recommend investments that greatly benefit a client but do not yield much compensation for the advisor.

Financial advisors have additional obligations. If an advisor has any possible conflicts of interest with a client, the advisor should disclose them. A client should not worry that an advisor may have interests that run counter to those of the client. Advisors should actively avoid conflicts of interest and be loyal to their clients as they assist them.

Fiduciaries should also provide their clients with accurate information. As a client, you need to know all the information that any investor would reasonably require to make financial choices. A financial advisor cannot hold back material facts even if you find the information troubling. And if you want your advisor to act, the advisor should take action without delay and at the most favorable terms possible.

A failure of a fiduciary to perform according to these standards could constitute fraud and may invoke legal consequences. A court may revoke the registration of the firm where the advisor works, or the advisor may suffer personal disbarment from acting as a financial advisor. Fines and penalties may also apply when appropriate. Courts may also require a fraudulent fiduciary to turn over ill-gotten money to a client.