Who do I Have a Fiduciary Responsibility to?

When I was setting up my fund one of the biggest things I had questions about was how do I maintain control of the fund?

What happens if one of my investors has something happen to him and needs cash? What if he demands action from the fund?

I have seen several former fund managers lose control quickly because they didn’t understand this principle of fiduciary responsibility.

And that brings us to here.

I want to help illustrate to you guys that this setup really isn’t all that complicated, despite what you may think.

Let’s get into it!

Fiduciary Responsibility?

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If you are like me, maybe you didn’t entirely comprehend just what this phrase meant when you first heard it.

According to our friends at Investopedia

“A fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests.”


Basically it’s with whom your loyalty lies.

This is something that is extremely important in the fund space for your own benefit, and of course that of your investors.

The application here comes in when you’re dealing with financial advice and licenses, specifically a series 65.

Why the 65? Well, because with the 65 you are obligated to give the best investment advice possible to your client.

That brings me to my next point.

Clients and Conflicts of Interest

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Now, who is your client? This is where the technicalities are going to protect you as the fund manager.

If you have your 65 and plan on charging an advisory fee – typically around 1-2% of the AUM of the fund – your “client” is the fund entity itself. You have a fiduciary responsibility to advise the fund, which is the collection of LPs forming your GP.

Meaning you must operate with the fund’s best in mind.

On the other hand, you may be dealing with RIAs (Registered Investment Advisors) who represent different investors.

Let’s say you, as a fund manager, have a friend or family member that has their own RIA and you connect and your friend decides he wants to invest in your fund.

His RIA is then legally required to operate with his client’s best interest in mind.

Hypothetically, this could lead to a conflict of interest down the road if something were to happen to your friend.

For example, let’s say your friend has a tax issue and could use some extra cash.

He then reaches out to you and says let’s liquidate some of the funds assets, which would mean that influx of cash would get pushed to the investors, and therefore help your buddy.

However, even though you may feel some loyalty to this individual, you are by law required to do what is best for your CLIENT, which is the fund.

If the fund’s assets are not in the best position to sell, then you will have to tell your friend no, because he is not your fiduciary responsiblity.

Short term, maybe this is going to damage your relationship, but in the long run you are protecting the majority of your LPs and honestly yourself.


Short and sweet today guys.

I just wanted to make sure that we clear up where our loyalties need to lie if you’re going to be a fund manager.

It’s important to remember that when dealing with OPM (Other People’s Money) the waters can get murky.

That’s why the SEC has put these regulations in place, and defined responsibilities like this so clearly so as to avoid anything that could cause substantial losses for anyone involved.

Hope this helps,

Bridger Pennington

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DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.

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