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‹ Behaviour, Ethics & Suitability Lesson 9 of 16
Contents Lesson 9 of 16

4 min read · practitioner

What does it actually mean to act in someone else's best interest?

Educational content, not legal or compliance advice. This unit explains how professional duties generally work, in plain language. The obligations that actually bind you come from your jurisdiction, your regulator, your licence and your employer's code — and they differ substantially between countries and between services. Check those, and take qualified professional advice where it matters.

A fiduciary duty is the strongest standard the law applies to one person handling another's affairs. It arises wherever someone is trusted to exercise discretion over another's money or interests — trustees, pension boards, discretionary managers, and in many regimes financial advisers. Its defining feature is that it is other-regarding: within the relationship, your own interest is not merely secondary, it is largely excluded from consideration.

Two limbs

Formulations vary, but nearly every version rests on two pillars.

Loyalty. The client's interest comes first. In practice this means no undisclosed self-dealing, no secret profits, no using the client's information or opportunities for yourself, and no letting a third party's payment influence a judgement the client is relying on you to make. Loyalty is strict precisely because the client usually cannot verify what you did — which is why the standard is about the absence of competing motive, not about whether you would have chosen the same thing anyway.

Care (or prudence). Act with the skill, diligence and caution that a prudent professional would apply in these circumstances. Know the client's situation. Consider real alternatives. Diversify where prudence requires it. Monitor what you put in place. Care is a standard of effort and method, and it scales with what you hold yourself out as being.

Most codes add supporting duties: follow the client's lawful instructions and any governing mandate, keep client property separate from your own, account honestly and report accurately, and deal fairly between clients.

A concrete case

An adviser with discretion over a client's portfolio is offered an allocation in a new fund. The fund is respectable, the strategy is defensible, and the sponsor pays her firm a 3% placement fee.

The fiduciary question is not "is this a bad fund?" It may well be a good one. The questions are:

  • Loyalty: would I select this for this client if the 3% did not exist? If the fee is any part of the reason, the duty is breached even if the fund performs beautifully.
  • Care: did I actually compare it against the realistic alternatives — including the cheaper, duller ones — and can I show the comparison?
  • Evidence: if a regulator, or the client's family, asked me in two years to justify this, does the file answer them, or does it just contain a signature?

Notice that the fee does not become acceptable simply because it was disclosed. Disclosure is a separate obligation, dealt with in Unit 4, and it does not convert a conflicted recommendation into a loyal one.

Process, not outcome

Fiduciary duty judges how you decided, not how it turned out. A prudent, well-documented, loyal decision that loses money is not a breach — markets fall, and the standard has never been clairvoyance. A lucky decision made for the wrong reason, or with no work behind it, is a breach that happens to have escaped consequences.

This is why documentation is not bureaucracy. Loyalty and care are invisible states of mind; the file is the only place they leave a trace. A practitioner who cannot reconstruct why a decision was right for this client, from records made at the time, has no defence — and, more importantly, probably did not have a reason.

Try it now

  1. Restate the two limbs in your own words, then apply them to the placement-fee case: what would loyalty require, and what would care require, in concrete actions?
  2. Take any decision you have made with money that was not entirely your own — a family member's savings, a shared pot, a company budget. Could you reconstruct the reasoning from records made at the time?
  3. Write the file note you would want to exist for that decision: the client's situation, the alternatives considered, and why this one served them.