Fiduciary

A fiduciary is a person or entity that acts on behalf of another individual or group of individuals. When someone has fiduciary duty, they are legally bound to behave in a way that will benefit their client and put their best interests first.

The person who holds fiduciary duty is known as the “fiduciary” or “trustee” while the other party is called the “beneficiary” or “principal”. Most often, fiduciaries are tasked with managing the assets or finances of another person or group of people. However, fiduciary duty may also involve being responsible for the general well-being of another.

If a fiduciary breaches their duties, they need to account for any damages endured or profits lost by the beneficiary. For this reason, it’s important to fully understand what it means to establish this type of relationship and the possible legal consequences. Discover how fiduciaries work below.

Read More: Trustor vs Trustee

Examples of Fiduciaries

Fiduciary duties are present in a wide range of business and legal relationships. An example of this is corporate directors that are on the board of a corporation, these are considered trustees for the shareholders.

Lawyers are also regarded as fiduciaries, due to the fact that they must act in their client’s best interests. Similarly, legal guardians appointed by a state court to take care of someone else’s child or executors named in a will are part of a fiduciary relationship.

Some of the most common types of fiduciaries include:

• Financial advisors
• Insurance companies/agents
• Legal guardians
• Asset managers
• Financial planners
• Accountants
• Members of a limited liability company (LLC)
• Pension plan managers
• Money managers
• Executors
• Board members
• Corporate officers
• Stock promoters
• Investment corporations

What Types of Fiduciary Duties Exist?

Different types of fiduciary relationships exist depending on the specific legal agreement in place. This means that the duties borne by each type of fiduciary can change a great deal.

Below are some well-known examples of fiduciary duties:

• Corporate directors hold three duties to their shareholders. These include the duty of care, the duty of loyalty, and the duty to act in good faith.
• Legal guardians must provide appropriate care to the ward or child they are entrusted with. This usually involves organizing their education, medical care, and daily welfare.
• Attorney’s must act in complete fidelity, loyalty, and fairness when representing any of their clients.

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What Are the Consequences of Breaching a Fiduciary Duty?

When a trustee fails to act responsibly in the interests of their client, this is known as a breach of fiduciary duty. In the event that this occurs, there are various legal and nonlegal repercussions that may be faced by the fiduciary.

Due to the fact that each fiduciary relationship is different, what constitutes a breach and its related consequences can vary significantly. However, case law states that breaches generally happen when actions are taken which are contrary to the interests of the principal.

Trustees that have not carried out their duties might face financial penalties, industry discretization, the loss of a license, or the removal from a service or organization. In general, when a fiduciary breach case proceeds to the courts, harsher penalties are imposed.

Read more: Duties of a Trustee