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September 12, 2013 at 12:22 PM
In honor of Fiduciary September, the Institute for the Fiduciary Standard has published a white paper that discusses the Six Core Fiduciary Duties identified by the Institute as embodying the major elements of fiduciary responsibility under the Advisers Act of 1940.
The Six Core Fiduciary Duties reflect principles that have served society for centuries. In recent times, the legislative history of the Advisers Act set out in the 1930s underscored the need for fiduciary principles as the backbone of “competent, unbiased and continuous advice.” They echo in the SEC’s longstanding practice to urge advisors to avoid conflicts of interest, and a thoughtful speech by the then SEC Director, Office of Compliance and Inspections, Carlo De Florio, in October 2012, who characterized conflicts as “viruses that threaten the organization’s well being.”
The duties are explained, in part, through the principles articulated by the SEC in its off-cited 1948 case, In the Matter of Arlene Hughes. Hughes, a dually registered broker, sells her own securities to her clients, who by all accounts trust her emphatically. Hughes acknowledges her fiduciary status. In her clients’ eyes, Hughes is viewed a true fiduciary. Unfortunately, however, the SEC found in its fact finding that Hughes’ clients failed to understand that Hughes chose to put herself in a conflicted position, and clients also failed to understand what that conflicted position meant to them.
The Duties are evident throughout Hughes, an SEC opinion focused on the challenges created when an advisor puts herself in a conflicted position. Hughes transcends legal nuances to focus on the core challenge of conflicted advice and the need for self-restraint. Hughes’ vigor is its clarity. It applies and expresses basic principles to common circumstances, and states clearly what it means to be a fiduciary.
