Trust is the essential element. It defines and bonds any relationship and is the life-blood of any civil society. When stakes are low, the absence or erosion of trust seems less consequential and a lesser commercial standard of care (caveat emptor or buyer beware) will suffice. Trust is particularly critical when there is a significant disparity in knowledge or information, for example, one's relationship with physicians, lawyers, and accountants. These relationships require trust and a leap of faith that these professionals will make decisions and take actions that are in one's best interest. Trust is also paramount when someone is given the duty to manage property for the benefit of others or make decisions about the wellbeing of others. Boards of trustees, retirement plan sponsors, and boards of directors are obvious examples. They have a duty to seek professional advice or assistance in carrying out their obligations to protect and advance the interest of the property owners or the beneficiaries.

Those entrusted are in the position of power, and as fiduciaries, they have a duty to carry out their actions in good faith with undivided loyalty and due care.


A registered investment advisor is clearly a fiduciary, by function or by law. The Investment Advisors Act of 1940 defines an investment advisor as a fiduciary whose duty is to serve the best interests of its clients, including an obligation not to subordinate clients’ interests to its own. Included in the fiduciary standard is, not only the duty of loyalty, but also due care. An investment advisor that has a material conflict of interest must either eliminate that conflict or fully disclose to clients all material facts relating to the conflict. When serving as a fiduciary to a retirement plan, the Employee Retirement Income Security Act (ERISA) expects all advice and actions to be in the "sole interest" of the plan participants and for the "exclusive purpose" of pursuing the plan objectives. The prudent expert standard of due care and due diligence are expected. Managing conflicts of interest under ERISA is not an option (unless an exemption is granted to carry out a prohibitive transaction), and the only course of action is to eliminate the conflict or else resign as a fiduciary.