Introduction to Fiduciary

5paisa Research Team Date: 08 Apr, 2024 03:45 PM IST


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Someone who operates in other people's best interests is called a fiduciary. The National Association of Personal Financial Advisors (NAPFA) stipulates that fiduciaries operate in the best interests of their clients at all times when it comes to financial advisors. Furthermore, as per the fiduciary definition, he/she must disclose any conflicts of interest that could proactively affect their clients.

What is a Fiduciary?

If you are seeking the answer to the question what is a fiduciary, then you must know that this term is used both in law and banking. The fiduciary meaning in banking designates a financial organization or person designated to oversee investments, assets, or trusts on behalf of customers. As fiduciaries, banks have an obligation to act in their clients' best interests while managing their money, assets, or retirement accounts.

However, suppose you are to define fiduciary in the aspect of law. In that case, it is a person or organization tasked with acting on behalf of another party, frequently in financial problems, is known as a fiduciary under the law. High levels of trust are involved in this relationship, and the fiduciary is obliged to put the beneficiary's interests ahead of their own. Professionals who may be asked to operate in a fiduciary position include attorneys, trust officers, and financial advisors. 

Fiduciary Duty vs. Suitability Standard

When it comes to client advice, financial advisors are usually held to either a suitability requirement or a fiduciary standard. The differences between them show the different levels of care that a financial adviser needs to give their clients.

The term "suitability" refers to a financial product's ability to match someone in your circumstance in general or its suitability. Someone who is approximately the same age, married status, and income as you could be considered an example of this. However, a suitable financial product or investment might not be the right choice for your particular circumstances. We will substantiate this with an example. One way to illustrate how the suitability standard is violated is by suggesting that a cautious investor puts a large amount of their money into risky assets.

An advisor, however, has a fiduciary duty to their clients. To help guarantee that any financial product or investment vehicle is suitable for their client's particular financial condition, they conduct due diligence. An example of adhering to fiduciary duty would be a registered investment advisor proposing investment options that optimize returns for the client, even if doing so results in lesser commissions for the advisor.

Before you choose a financial advisor to help you with your specific situation, you should think about two things. One is whether you want someone who gives you general advice that might work for you in a broad sense. Two, if you want someone who takes their duty of care seriously and makes their financial advice fit your needs.

Fiduciary vs Financial Advisor

In the financial services business, "financial advisor" and "fiduciary" are two different roles. "Fiduciary" has a higher ethical duty than "financial advisor." These responsibilities overlap in India under the financial advisory regulatory framework. A financial advisor is a trained individual who helps people with their finances in many areas, such as investing, planning for retirement, and managing their wealth. 

That being said, a fiduciary is distinguished by a greater degree of legal accountability and trust. They are obligated to prioritize the needs of their clients more strictly. Imagine a situation in which a person contacts a financial advisor in India for advice on investments. The advisor is probably subject to a fiduciary standard if they conduct business as a registered investment advisor (RIA), as per regulatory designation. 

As such, even if it means taking a smaller commission, the advisor has to suggest investment solutions that serve the client's best interests. The advising relationship's primary focus in this fiduciary duty is the client's financial well-being.

On the other hand, a financial advisor who isn't clearly labeled as an RIA may follow a suitability standard and suggest goods that are suitable but not necessarily required to put the client's best interests ahead of all else.

To sum up, whereas all fiduciaries may serve as financial advisors, this is not necessarily the case for all financial advisors. 

What are the potential legal consequences for breaches of fiduciary duties?

Failing to uphold fiduciary duties in India may give rise to civil and criminal penalties. The person who was hurt can file a legal suit to get monetary damages, an injunction, or a specific performance. Also, based on the type of breach, criminal charges may be brought under the relevant sections of the Indian Penal Code. Penalties may consist of fines, detention, or both. The Securities and Exchange Board of India (SEBI) and other regulatory bodies keep an eye on fiduciary duties in the financial services sector. They may punish people who don't follow the rules.


A fiduciary has duties to be loyal, careful, honest, open, and prudent. These duties apply in all areas, such as legal issues, financial services, and more. Contact our financial experts immediately if you have any questions concerning fiduciaries, fiduciary duties, or anything else related to your firm's finances!

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Frequently Asked Questions

In India, a Registered Investment Advisor (RIA) is an example of a fiduciary. It is the responsibility of RIAs to manage and counsel customers on investments. They have duties to their clients, like loyalty, care, and honesty, which means they have to put their client's best interests first when it comes to money issues.

In India, fiduciaries are regularly hired by individuals and organizations in need of financial management and assistance. This includes persons who need professional advice on wealth management, investors, and beneficiaries of trusts. 

Registered Investment Advisors (RIAs), for example, are fiduciaries in India who usually charge for their services. They might get paid directly by clients through advisory fees, hourly rates, or a share of the assets they handle.