A dually registered adviser sits across from a client who just inherited $450,000. She can recommend a fee-based IRA generating 1% annual revenue, or point the client back to the employer's 401(k) with institutional funds at 0.03% and no advisory fee. Under suitability, the IRA might pass. Under the fiduciary standard, it cannot. A cheaper, better alternative exists, and the recommendation is driven by the adviser's interest. That gap between "suitable" and "in the client's best interest" is the single most consequential concept in financial planning regulation.
A fiduciary holds a position of trust and must act in the other person's best interest. Three core duties:
- Duty of Loyalty: place the client's interests ahead of your own
- Duty of Care: act with the competence a reasonably prudent professional would exercise
- Duty to Follow Client Instructions: respect the client's reasonable, lawful directives
The Duty of Loyalty is the heart. It means more than disclosing conflicts. It means managing or eliminating them so advice is not tainted by competing interests.
Common mistakes
- Treating Reg BI as equivalent to fiduciary. Reg BI is transaction-specific, securities-focused, and requires conflict mitigation. The CFP Board standard is ongoing, covers all financial advice, and requires conflict avoidance. When a question asks which standard governs a CFP professional, the answer is always the CFP Board standard.
- Thinking suitability still applies to CFP professionals. It does not, in any context. Even in a brokerage capacity, the CFP Board fiduciary standard controls. Trap: "The recommendation was suitable for the client's risk profile, so the standard was met."
- Confusing ERISA prudent expert with common law prudent person. Employee benefit plan (401(k), pension, profit-sharing) = ERISA, prudent expert. Personal trust or common law fiduciary = prudent person (UPIA total-portfolio standard). Trap: "The 401(k) fiduciary satisfied the duty by acting as a reasonable person would."
Bottom line
- Suitability < Reg BI < Fiduciary: for a CFP professional the CFP Board standard always controls, even when wearing the broker-dealer hat.
- Fiduciary duty applies to any financial advice, not just comprehensive planning.
- The CFP Board standard exceeds Reg BI: ongoing, conflict avoidance, all advice (Reg BI is point-of-recommendation, mitigation, securities only).
- Disclosure alone never satisfies fiduciary duty: avoid first, then disclose and manage.
Exam shortcut
When you see a dually registered adviser scenario, the CFP Board fiduciary standard always governs if the professional holds the CFP designation. Do not pick suitability or Reg BI as the controlling standard. For ERISA questions, "employee benefit plan" or "401(k)" = prudent expert.
The full lesson (about 2,428 words, 16 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- A.6
Browse all free CFP lessons or jump into free CFP practice questions.