Forbes’ recent article explains that in a fiduciary relationship, the person who must prioritize their clients’ interests over their own is called the fiduciary. The person getting the services or assistance is called the beneficiary or principal.
A fiduciary duty is the legal requirement that certain professionals, like attorneys or financial advisors, work in the best financial interest of their clients. This is a serious task to take on. If they don’t fulfill their duties, it’s known as a breach of fiduciary duty.
When acting in their beneficiary’s or principal’s best interest, they have two main duties: duty of care and duty of loyalty.
- Duty of Care is when fiduciaries make informed business decisions after reviewing available information with a critical eye. Care is determined by the prevailing standards of professional competence in the relevant field of law and geographic region.
- Duty of Loyalty is when fiduciaries can’t have any undisclosed economic or personal conflict of interest. Basically, it means that they can’t use their professional position to further their own private interests.
Depending on the industry, they may have additional requirements.
- Trustee of a Trust. When you want your assets to transfer to someone after you die, you can put them into a trust. The trustee who’s in charge of the trust has a fiduciary duty to manage the trust and its assets in the best interests of the beneficiary who will one day inherit them.
- Estate Executor. The person who manages your estate and handles your affairs is your estate executor. They have a fiduciary responsibility to your heirs and next of kin to distribute the estate according to your wishes.
- Lawyer. Your attorney must disclose any conflicts of interest and must work with your best interests in mind.
- Financial Advisors. Financial advisors who are fiduciaries must act in the best interest of their clients and offer the lowest cost financial solutions to fit their clients’ needs. However, it important to note that not all financial advisors are fiduciaries.
Reference: Forbes (July 28, 2020) “What Is Fiduciary Duty?”