Can an Advisor Be a Fiduciary to Stakeholders and Clients?

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Corporate boards have been facing the conflict between their fiduciary obligations to shareholders and the mounting pressure to consider the interests of other “stakeholders,” such as employees, customers, business partners, local communities, governments, and even the planet. Making matters more complex, some of the strongest advocates for stakeholder consideration are shareholders themselves, especially shareholders who are focused on environmental, social, and governance (ESG) factors.

This conflict has an analogue in the investment advisory world. Specifically, investment advisors have a fiduciary obligation to prioritize the interests of a single stakeholder, their client. Yet, investment advisors also may be asked to adopt a broader stakeholder model by the very clients to whom they owe a fiduciary duty.

Can an investment advisor be a stakeholder company while also discharging its fiduciary obligation to clients? I will argue that the answer is “yes.”

Understanding the fiduciary standard

While neither Congress nor the SEC has offered a legal definition of the fiduciary standard applied to investment advisors, the SEC did offer some helpful comments in a 2018 release, in which it stated that an advisor’s fiduciary duty:

comprises a duty of care and a duty of loyalty. … This means the adviser must, at all times, serve the best interest of its clients and not subordinate its client’s interest to its own.