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Understanding Fiduciary Duty: What It Means for Investors

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An in-depth look at fiduciary duty and its impact on investments.


As investors, we entrust our money to financial advisors, brokers, and other professionals to make sound investment decisions on our behalf. But not all investment professionals are created equal. Some are held to a higher standard of care than others, and this standard is known as fiduciary duty.

Fiduciary duty is a legal obligation that requires investment professionals to act in the best interests of their clients, putting their clients' needs ahead of their own. This duty applies to all investment professionals who provide advice or manage money for clients, including financial advisors, brokers, and portfolio managers.

Fiduciary duty is important because it holds investment professionals accountable for their actions and ensures that investors receive unbiased advice. Without fiduciary duty, investment professionals could put their own interests ahead of their clients, leading to poor investment decisions and potentially significant losses.

One recent development in the world of fiduciary duty is an order that directs executive branch agencies and state treasuries to not invest funds solely based on environmental, social, and governance (ESG) criteria. This order has sparked debate among investors and investment professionals about the role of ESG investing and its impact on fiduciary duty.

Another topic of discussion in the world of fiduciary duty is the performance of U.K. fiduciary managers in 2022. According to a recent report, there was a 13% difference in returns between the highest and lowest performing portfolios, highlighting the importance of selecting a fiduciary manager who is committed to acting in the best interests of their clients.

As You Sow, a nonprofit shareholder advocacy organization, is also taking a closer look at fiduciary duty. The organization is scouring Department of Labor Form 5500 filings to identify and rate investment professionals based on their adherence to fiduciary duty.

In some cases, fiduciary duty can come under scrutiny. For example, a recent federal court decision in Florida struck down the Department of Labor's guidance that declared rollover advice fiduciary advice. This decision has raised questions about the scope of fiduciary duty and the responsibilities of investment professionals.

Despite these challenges, fiduciary duty remains an important concept in the investment world. A financial advisor who is a fiduciary has an ethical duty to make recommendations that are best for their clients, rather than their own financial interests. This can help investors make more informed decisions and avoid potential conflicts of interest.

The US Labor Department has signaled that it will appeal a lower court opinion striking down its recent guidance on fiduciary duty. This appeal could have significant implications for investment professionals and their clients.

The topic of fiduciary duty is also being discussed in Congress. Labor secretary nominee Julie Su faced questions during her confirmation hearing about SECURE 2.0 and the department's work on a new fiduciary rule. These discussions could lead to changes in the way that fiduciary duty is enforced and regulated in the future.

In conclusion, fiduciary duty is an important concept that all investors should be aware of. By understanding fiduciary duty and working with investment professionals who are committed to acting in their clients' best interests, investors can make informed decisions and protect their investments.

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