Fiduciary Standards

Regulatory status current as of June 2026 — verify effective dates, dollar thresholds, and pending rulemakings against current SEC/FINRA/FinCEN sources before advising.

Core Concepts

Investment Advisers Act Section 206

Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 are anti-fraud provisions that the Supreme Court (in SEC v. Capital Gains Research Bureau, 1963) interpreted as establishing a federal fiduciary duty for investment advisers. Section 206(1) prohibits employing any device, scheme, or artifice to defraud a client. Section 206(2) prohibits any transaction, practice, or course of business that operates as a fraud or deceit on a client. Together, they impose an affirmative duty of utmost good faith, full and fair disclosure, and an obligation to act in the client's best interest.

SEC 2019 Fiduciary Interpretation (Release IA-5248)

The SEC's June 2019 interpretation clarified that the IA fiduciary duty comprises two component duties:

Duty of Care:

• Duty to provide advice in the client's best interest — the adviser must have a reasonable understanding of the client's objectives and provide advice that is in the client's best interest in light of those objectives. This includes the duty to provide advice about whether to invest in a particular type, strategy, or security at all.
• Duty to seek best execution — when the adviser has authority to select broker-dealers, it must seek to obtain the most favorable terms reasonably available under the circumstances for client transactions.
• Duty to provide advice and monitoring over the course of the relationship — this is an ongoing duty that continues throughout the advisory relationship, not just at the point of recommendation. The frequency of monitoring depends on the scope of the advisory relationship.