Fiduciary Duty

What is fiduciary duty?

Fiduciary duty is a moral responsibility to act in the best interest of another. Fiduciary duties encompass a range of legal and ethical obligations, which may differ depending on the industry you work in and the laws of your particular state. However, generally speaking, those who hold fiduciary responsibility vow to prioritize the needs of others ahead of personal gain. The promise is to make decisions in good faith and act with honesty, loyalty, and confidentiality. If they fail to meet their fiduciary responsibilities, they could face legal consequences.

Many different professions have fiduciary responsibilities. Lawyers and real estate agents, for example, are required to act solely in the best interests of their clients, regardless of how the outcome of a court case or real estate deal will affect them personally. Business owners, on the other hand, may have a legal obligation to make business decisions that are in the best interest of their shareholders.

Fiduciary duty FAQs

What are the primary fiduciary duties?

There are six primary fiduciary duties that broadly govern how fiduciaries are expected to act. How these duties are performed may vary according to different industries and professions.

• Duty of care, which refers to a fiduciary’s legal responsibility to exert due diligence when making decisions that will affect the beneficiary.
• Duty of loyalty, which dictates that fiduciaries must disclose any conflicts of interest that could prevent them from acting with their beneficiary’s best interest in mind.
• Duty of good faith, which refers to the broad legal responsibility a fiduciary has to always put the client’s best interests first.
• Duty of confidentiality, which means the fiduciary must keep the private information of a beneficiary confidential and not use it for personal gain.
• Duty of prudence, which outlines that the fiduciary must complete their responsibilities with the utmost care, skill, and caution.
• Duty to disclose, which requires the fiduciary to disclose any information that could prevent them from fulfilling their legal obligations in full.

What is an example of violating fiduciary duty?

A simple example of an individual violating their fiduciary duties would be if they acted in their own best interest instead of the interest of their beneficiary. For example, if a real estate agent dissuaded a potential buyer from making an offer on a house because they wanted to buy that house themselves, this could be a breach of fiduciary duty.

What consequences are there for breaching fiduciary duty?

The penalties you could face for breaching your fiduciary duties vary depending on the industry you work in, the laws governing your state or profession, and the severity of the breach. You could face financial consequences like having to pay damages to the person whose trust you violated, and you may also risk losing your job or professional license.

What qualifies someone as a fiduciary?

Anyone who has a legal obligation to make decisions in the best interest of another can be said to have fiduciary responsibilities. While many fiduciary relationships are between professionals and their clients or businesses and their shareholders, some fiduciary relationships are personal as well. For example, a trustee who oversees financial assets for a minor beneficiary has a legal obligation to manage those finances in a way that benefits the child, to the best of their ability.