Fiduciary advice plays a critical role in helping investors save and invest for their future.
The ongoing growth of the fiduciary investment adviser industry highlights that investors increasingly value this type of advice and rely on investment advisers to achieve key financial objectives such as retirement savings, homeownership, and education funding. The IAA supports policies that encourage investors to seek fiduciary advice, enabling them to navigate complex financial markets and reach their financial goals effectively.
Investment advisers maintain a unique relationship of trust and confidence with their clients.
As fiduciaries, investment advisers are bound by duties of care, loyalty, and utmost good faith, requiring them to act in their clients’ best interests at all times and not put their own interests ahead of the clients’ interests. Investment advisers must provide full and fair disclosure to their clients and ensure that conflicts of interest do not taint the advice they provide. These fundamental principles and legal responsibilities form the foundation of an investment adviser’s commitment to serving clients with integrity and excellence.
Confusion about financial services roles and responsibilities remains widespread.
Investors often struggle to differentiate between the legal and regulatory obligations of various financial professionals, such as fiduciary investment advisers and broker-dealers. This lack of understanding highlights the need for ongoing investor education. Key distinctions include:
- Fiduciary Duty: Investment advisers are fiduciaries, obligated to act in their clients’ best interests at all times and across all agreed-upon advisory services.
- Long-Term Advice: Unlike sales-focused professionals, investment advisers typically provide ongoing fiduciary advice over the long term, rather than offering transaction-specific recommendations tied to commissioned product sales.
- Aligned Incentives: Investment advisers’ compensation models – often based on a percentage of clients’ portfolio values – are aligned with clients’ financial success. By contrast, sales and commission-driven models may pose greater conflicts of interest.
Clarifying these differences is essential to help investors make informed decisions about their financial futures.
We urge the SEC to ensure that financial professionals and firms do not misrepresent themselves as fiduciaries or investment advisers unless they meet the legal requirements to do so.
Under the Advisers Act, broker-dealers must register as investment advisers unless their advice is “solely incidental” to their brokerage activities. However, lax enforcement of this requirement since the early 2000s has blurred the lines between investment advice and brokerage services, deepening investor confusion.
To address this issue, we encourage the SEC to periodically conduct investor testing of disclosure forms to identify and clarify areas of persistent misunderstanding.
The IAA is committed to collaborating with policymakers to ensure that investors are both educated and protected, with their expectations aligned with the services they receive.