Fiduciary
A person or entity legally obligated to act in another party's best interest.
What is Fiduciary?
A fiduciary is a person or institution with a legal and ethical obligation to act in the best interest of another party (the beneficiary), placing the beneficiary's interests above their own. In finance, investment advisers registered with the SEC are fiduciaries; they must recommend products that are best for the client, not merely "suitable." Brokers have historically been held to a lower suitability standard, though the SEC's Regulation Best Interest (Reg BI) tightened this in 2020. Trustees, pension managers, and corporate directors also carry fiduciary duties.
Example
A Registered Investment Adviser (RIA) recommending a low-cost index fund over a higher-cost actively managed fund with similar characteristics fulfills their fiduciary duty by choosing the option with lower fees and equivalent risk.