/fiduciary-standards

name: fiduciary-standards
description: "Apply the investment adviser fiduciary duty (IA Act Section 206), ERISA fiduciary standards, the DOL fiduciary rule and PTE 2020-02, and state fiduciary rules. Use when the user asks whether a fiduciary standard applies, what the duty of care and duty of loyalty require of an adviser, ERISA Section 404 prudent expert obligations, PTE 2020-02 rollover exemption conditions, DOL fiduciary rulemaking status, or state-level fiduciary developments. Also trigger when users mention 'are we a fiduciary here', 'retirement plan adviser obligations', 'DOL fiduciary rule', or 'dual registrant hat switching' from the adviser side. (For the broker-dealer best-interest standard and the canonical Reg BI vs fiduciary comparison, use reg-bi.)"

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.

**Duty of Loyalty:**

• The adviser must not place its own interests ahead of the client's interests.
• Must provide **full and fair disclosure** of all material conflicts of interest that might incline the adviser to render advice that is not disinterested.
• Disclosure must be **sufficiently specific** that a client can understand the conflict and provide **informed consent**. Generic or boilerplate disclosure is insufficient.
• Even with disclosure and consent, the adviser cannot act in a manner inconsistent with the client's best interest.

ERISA Section 404 Fiduciary Standard

ERISA imposes a fiduciary duty on persons who exercise discretionary authority or control over a retirement plan or its assets, or who provide investment advice for a fee:

• **Prudent expert rule** — a fiduciary must act with the care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with such matters would use (higher than the "prudent person" standard — requires subject matter expertise)
• **Exclusive benefit rule** — act solely in the interest of plan participants and beneficiaries
• **Diversification** — diversify plan investments to minimize the risk of large losses unless it is clearly prudent not to
• **Plan document compliance** — act in accordance with plan documents to the extent consistent with ERISA
• **Prohibited transactions (Section 406)** — fiduciaries may not engage in certain transactions with parties in interest, including lending, furnishing services for unreasonable compensation, or transferring plan assets for the fiduciary's own interest

DOL Fiduciary Rule and PTE 2020-02

The Department of Labor has repeatedly sought to expand the ERISA fiduciary definition:

• **2016 DOL Fiduciary Rule** — broadly defined "investment advice fiduciary" to include one-time rollover recommendations. Vacated by the Fifth Circuit in 2018 (*Chamber of Commerce v. DOL*).
• **2024 Retirement Security Rule** — adopted April 2024, it would again have treated one-time rollover recommendations as fiduciary advice. Two Texas federal district courts stayed the rule nationwide in July 2024 before its September 2024 effective date (*Federation of Americans for Consumer Choice v. DOL*; *ACLI v. DOL*). The DOL subsequently abandoned its defense, and the Fifth Circuit dismissed the appeals in late 2025 — the rule never took effect. The DOL has signaled new rulemaking in this area (2026 regulatory agenda); verify the current status before advising.
• **Current regulatory posture** — with the 2024 rule stayed and undefended, the 1975 five-part test remains the operative baseline for determining ERISA investment-advice fiduciary status (verify current status given pending rulemaking).
• **PTE 2020-02 (Prohibited Transaction Exemption)** — provides a pathway for investment advice fiduciaries to receive compensation that would otherwise be a prohibited transaction (e.g., commissions, 12b-1 fees, revenue sharing) from rollover and other recommendations. Conditions include: acting in the customer's best interest, providing balanced disclosure, charging only reasonable compensation, adopting anti-conflict policies, and conducting retrospective compliance reviews.
• **Rollover recommendations** — PTE 2020-02 explicitly covers rollover recommendations from plans to IRAs. Firms must docum