A fiduciary handles financial, business or personal affairs on behalf of another and needs to always act in that person’s or organisation’s best interests, even when it eclipses their own interests. They need to provide impartial advice and put themselves in their client’s shoes.
“Fiduciary relationships are formed when a beneficiary relies on the expertise of a fiduciary and is at the mercy of their control or discretion,” observed the Corporate Finance Institute.
“Fiduciary duties appear in various business relationships, including between a trustee and a beneficiary, corporate board members and shareholders, and executors and legatees,” explained Investopedia.
The Guichet.lu portal defined a fiduciary, commonly known by the French term fiduciaire, as a “legal entity responsible for the management or administration of property transferred to this entity by a person under the terms of a fiduciary agreement.”
Other examples of professions with a fiduciary responsibility include accountants, attorneys, bankers, members of a charitable organisation’s committee, corporate officers, financial and investment advisors, insurance agents, a child’s or adult’s legal guardian, money managers and stockbrokers.
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“A fiduciary holds a legally enforceable position of trust,” noted LexisNexis. That means avoiding conflicts of interest and the appearance of conflicts of interest.
The CFI stated: “A classic example of violating one’s fiduciary duty would be a financial advisor who steers a client toward making investment ‘A’ even though the fiduciary is aware that investment ‘B’ is more likely to generate the best return on investment--simply because the fiduciary will earn a large commission from convincing the client to invest in investment A. In such a scenario, the fiduciary is putting their own best interest ahead of the best interest of their client.”
Other no-no examples include a board director steering a contract to a provider in which they have a stake or an advisor withholding relevant information about the value or condition of an asset.
