In both common and civil law jurisdictions, fiduciary duties (in the broadest sense) have long been recognized as a key element of the relationships between financial intermediaries and their customers. If one defines fiduciary relationships as including “important social and economic interactions of high trust and confidence that create an implicit dependency and peculiar vulnerability of the beneficiary to the fiduciary” (to borrow a definition suggested by Leonard Rotman),1 a broad range of financial services clearly match the description.2 From a comparative – and, particularly, from a Trans-Atlantic perspective – a useful starting point for analysis can be found in the statutory definitions of financial activities subject to specific prudential and conduct-of-business regulations. Wherever intermediaries hold money or other assets on behalf of clients in connection with transactions carried out on their behalf,3 or agree to provide expert advice with regard to investments4 or the conditions of a loan taken out by a customer,5 the existence of both a high level of trust and a high level of dependency and vulnerability on the part of the client is not just a characteristic feature of the intermediary-customer relationship, but provides the very rationale for public intervention, particularly in the form of conduct-of-business regulation. From a common law perspective, such activities usually will be qualified as agency relationships, which, given the functional nexus between fiduciary law and the law of agency in common law generally,6 helps explain why common law courts have frequently held that financial intermediaries are under fiduciary duties of loyalty and care, as well as duties to disclose certain information, to their customers.7 This doctrinal analysis can be backed up by an economic analysis of the agency problems between the intermediary (acting as “agent” for less knowledgeable investors) and the customer (as a “principal” who, almost by definition, can hardly protect himself against the fallout from information asymmetries and conflicts of interest on the part of the former).8 Even in civil law jurisdictions, where the legal basis for financial services contracts usually consists of, or is derived from, statutory categories of general contract law,9 the concept of fiduciary duties increasingly has come to be accepted as an analytical framework.10 For a number of reasons to be explored in detail later, both the substantive laws pertaining to the provision of financial services and, indeed, their doctrinal interpretation can be seen to have converged in a large number of jurisdictions over the last few decades.

Debates over fiduciary status gained national prominence with the Department of Labor’s 2016 attempt to define an investment adviser fiduciary under the Employee Retirement Income Security Act in 2016. The DOL’s fiduciary rule, however, was vacated by the courts, leaving doubt as to whether and when an investment advisor is considered a fiduciary under ERISA. Moreover, many believe that earlier guidance from the DOL on who is an investment advisor fiduciary is too narrow to protect retirement investors. What is less well known is that many of the debates in ERISA over investment advisor fiduciaries track larger debates in the common law regarding fiduciary status. This chapter explores three parallels between the common law and ERISA in determining fiduciary status. The first is the structure of fiduciary categories and the division between categorical and ad hoc fiduciaries. The second is the tendency to look to whether one person has discretionary authority to determine whether the first person is a fiduciary. The third is the challenge raised by advice giving. Both common law courts and ERISA jurisprudence struggle to determine whether and when advisors, who lack discretionary authority, should be considered fiduciaries. The chapter concludes that trust can serve as a foundation for an advisor’s fiduciary status both in the common law and under ERISA.

Financial firms that offer investment advice to retail clients are beset by conflicts of interest: they may receive compensation tied to particular products, operate the financial products themselves, or be subject to other distortions. Regulators and lawmakers have looked to fiduciary and quasi-fiduciary duties to mitigate these conflicts. The paradigmatic example is the rigorous fiduciary standard imposed on registered investment advisers, but the Department of Labor’s now-defunct fiduciary rule, and the Securities and Exchange Commission’s recently adopted Regulation Best Interest similarly aim to mitigate problematic conflicts by imposing duties on those giving investment advice. These interventions largely focus on conflicts affecting which investment products investors are advised to hold, but other types of distortions, less discussed, may be just as important. This chapter offers an expanded account of conflicts of interest, how conflicts might interact, and how the fiduciary rule and Regulation Best Interest should be evaluated in light of this expanded menu of problematic incentives.