Fiduciary duty, applied to the tools.
Duty of care and duty of loyalty do not have a technology carve-out, and no clause can waive them.
Advisers Act Section 206 imposes a federal fiduciary duty made up of a duty of care and a duty of loyalty, and the SEC set out how it reads them in its 2019 interpretation of the standard of conduct for investment advisers. Neither duty has a technology exception. Selecting a tool that shapes advice is an exercise of the duty of care; anything that aligns your interests against the client's is a duty of loyalty question. The duty itself cannot be waived by client consent.
The duty of care, as four questions.
The duty of care covers advice in the client's best interest, a reasonable investigation behind it, best execution where you are executing, and monitoring over the course of the relationship. When a tool sits inside any of that, these are the questions that decide whether you have met it.
What did you investigate before relying on it?
The duty of care includes a reasonable investigation into what you rely on. For a tool in the path of advice, that means the diligence file exists and has something in it beyond a pricing page.
Can you account for the output?
Not the model weights. What data went in, what the tool was asked, what it is known to be bad at, and what a wrong answer would look like. You cannot form a reasonable basis on something you cannot account for.
Who reviewed it, and can you show that?
A named person exercising judgment over the output rather than forwarding it. This is the part that goes missing in the file, and the part an examiner reconstructs first.
Is the advice still suitable over time?
The duty of care includes ongoing monitoring where the relationship calls for it. A tool that was appropriate at selection can drift, get retrained, or have its scope quietly widened by the vendor.
The conflicts that actually arise.
The duty of loyalty requires you not to place your interest ahead of the client's, and to eliminate conflicts or make full and fair disclosure of them. None of the following are prohibited. Leaving them unstated is what turns an ordinary commercial arrangement into a Section 206 problem.
- Revenue sharing with a vendor. Any payment, rebate or referral arrangement flowing between you and a tool provider.
- Steering. A tool that surfaces affiliated, proprietary or higher-revenue products more readily than alternatives. This one is usually invisible until somebody asks what the ranking optimizes for.
- Cost passed to clients. A subscription charged to client accounts, particularly where the firm is the primary beneficiary of the efficiency.
- Capacity conflicts. A dual registrant using the same tool in both capacities, where the economics differ between them.
You cannot consent your way out of the duty.
The reflex, when a firm realises a tool creates fiduciary exposure, is to put a clause in the advisory agreement. It does not work. The federal fiduciary duty under Section 206 cannot be waived, and the SEC has said so plainly.
What a client can do is receive full and fair disclosure of a specific conflict and consent to that. That is a narrower thing than it sounds: it requires disclosure specific enough that the client actually understood what they were agreeing to, which broad catch-all language is designed not to be.
Language purporting to relieve you of responsibility for advice is a hedge clause with a long and unfavourable regulatory history behind it. Describe the tool, describe its limits, describe the human review over it. You cannot contract out of owning the output. The advisory agreement page covers what a clause can usefully do instead.
AI-washing is a loyalty failure.
The March 2024 settlements against two advisers for overstating their AI use are usually filed under marketing. They are more usefully read here. Telling clients your process is something it is not is a misstatement to the people you owe the duty to, in the documents they relied on to hire you.
That framing changes what you do about it. A marketing problem gets fixed by editing a page. A loyalty problem gets fixed by making the description true, or by making it narrower until it is.
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Sources and standing.
Section 206 of the Investment Advisers Act of 1940 is the antifraud provision from which the adviser's fiduciary duty derives. The SEC's Commission Interpretation Regarding Standard of Conduct for Investment Advisers, issued in 2019, is the statement of how the Commission reads the duty of care and duty of loyalty. Last reviewed at source: September 2026.
- 15 U.S.C. 80b-6, Advisers Act section 206 (prohibited transactions by investment advisers) (checked 2026-10-27)
- SEC Release IA-5248, Commission Interpretation Regarding Standard of Conduct for Investment Advisers (2019) (checked 2026-10-27)
This is not legal advice and it is not a substitute for your compliance counsel. It is how a practitioner who implements these systems reads the duty, written down so you can check it. If something here is wrong, tell me and it gets corrected.
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