The one-page pledge that forces your financial adviser to put you first

By Mark Hulbert

Most investors ignore this abstract legal rule - and it's fueling a massive wave of fraud

An adviser isn't obligated to promise there will be no conflicts of interest - but you're also not obligated to become a client.

Do you know if your financial adviser is a fiduciary - legally obligated to act in your best interest?

Though it's never been easy to answer this question, it became more complicated recently when a judge struck down a 2024 Labor Department rule that had classified more financial professionals as fiduciaries.

As it now stands, your adviser is a fiduciary if he is subject to the Employee Retirement Income Security Act of 1974 (ERISA) or the Investment Advisers Act of 1940. Broker-dealers are excluded from a fiduciary standard, unless they are dually registered as investment advisers or offer ongoing retirement financial advice.

Unfortunately, most investors don't focus on these issues; getting clarity about complex legal and regulatory classifications is boring and abstract. But investment-adviser fraud is growing: In 2024, the latest year for which I could find data, total losses just from reported investment scams alone was $5.7 billion, 24% higher than in 2023. The total amount of actual losses undoubtedly was much greater.

The fiduciary oath

Fortunately, there is a straightforward way to get clarity about your adviser: Ask them to sign a fiduciary pledge, such as the Fiduciary Oath created by the Committee for the Fiduciary Standard. This one-page commitment reads: "I will always put your best interests first. I will act with prudence; that is, with the skill, care, diligence and good judgment of a professional. I will not mislead you, and I will provide conspicuous, full and fair disclosure of all important facts. I will avoid conflicts of interest. I will fully disclose and fairly manage, in your favor, any unavoidable conflicts."

In fact, such a pledge provides greater clarity than laws and regulations. Those rules have to be drafted in a formal, one-size-fits-all fashion, resulting in pages and pages of legalese. It's almost impossible for those of us who aren't securities lawyers (and often for them, too) to know precisely what an adviser is required to do or prohibited from doing.

Talk with an adviser about these issues before signing up. An adviser isn't obligated to sign this pledge - but you're not obligated to become a client.

A parallel but equally important conversation to have is about the resolution of any disagreements that might arise. Many advisers and their firms have fine print in their contracts specifying mandatory arbitration, and all too often that fine print specifies that the firm unilaterally gets to choose who that arbitrator will be - raising obvious conflicts of interest. A better way of insuring arbitrator impartiality is for both you and the firm to name an intermediary that chooses an arbitrator acceptable to both you and the firm.

Another reason to talk about these issues before a relationship formally starts: The portfolio performance an adviser produces sheds no light on whether your best interests were served. A scrupulously honest adviser with no conflicts of interest can still give you advice that loses a lot of money.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

-Mark Hulbert

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06-20-26 1350ET