Fiduciary account
A fiduciary account is a brokerage or bank account managed by one person or entity for the benefit of another, such as a trust, custodial, guardianship, or estate account. The fiduciary must act solely in the beneficiary's best interest.
A fiduciary account is any account in which the person making the decisions is not the person who benefits from them. The fiduciary — a trustee managing a trust, an executor or administrator settling an estate, a guardian or conservator acting for someone legally unable to manage their own affairs, or a custodian on a minor's UGMA/UTMA account — controls the assets, while the beneficiary owns the economic interest.
Opening a fiduciary account requires documentation proving the fiduciary's authority, such as a trust agreement or court appointment papers, and the account is titled to reflect the fiduciary capacity. The fiduciary must follow the prudent investor rule, managing the assets the way a careful, intelligent person would manage their own. Speculative strategies, uncovered options, and margin trading are generally off-limits unless the governing document or court order expressly permits them.
The fiduciary standard is the strictest duty in finance: the fiduciary must put the beneficiary's interests first, may never use account assets for personal benefit, and can be held personally liable for breaches. Firms, in turn, must supervise these accounts closely and confirm the fiduciary is acting within the scope of their authority.
The Series 9, Series 7, and SIE exams all test fiduciary accounts — know who qualifies as a fiduciary, what documentation is required to open the account, and the investment restrictions that apply.
Key takeaways
- In a fiduciary account, one party manages assets solely for the benefit of another.
- Common fiduciaries include trustees, executors, administrators, guardians, conservators, and UGMA/UTMA custodians.
- Opening the account requires legal documentation of the fiduciary's authority, and the account title must reflect the fiduciary capacity.
- Fiduciaries must follow the prudent investor rule, and margin or speculative trading is prohibited unless expressly authorized.