Fiduciary duty and the choice between active and passive

March 26, 2019

There is nothing passive about being a fiduciary investment adviser, even when it comes to making decisions about passive investing. The duty of care requires the adviser to proactively exercise the skill, prudence and good judgment of a professional when selecting investment strategies and specific investments to serve investors' best interests.

Passive, or index, investing has been in a strong uptrend for the past decade, having grown from 14% of combined mutual fund and ETF assets under management in 2005 to 37% by the end of 2017, according to statistics published by the Federal Reserve Bank of Boston. That trend shows no signs of abating. It is backed by academic evidence that most active mutual fund and ETF managers do not consistently outperform index funds net of fees and expenses.

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