What is a Fiduciary?
A fiduciary is a person or organization that has a legal duty to act in the best interests of another party, such as customers or beneficiaries. They are expected to avoid conflicts of interest and act honestly and loyally.
Fiduciary Role Explained
Fiduciaries have ethical and legal responsibilities when managing someone else's money. They are required to act in the best interests of their client, a principle known as the "prudent person standard of care". Broker-dealers, however, have a lesser duty called the appropriateness standard.
Fiduciaries often charge a fixed fee, differentiating them from non-fiduciaries.
Fiduciary Relationships Beyond Finance
Fiduciary duties exist in various sectors including real estate, corporate governance, and legal matters.
In real estate, agents represent clients with a fiduciary duty to prioritize their clients' interests. In corporate governance, directors and board members have fiduciary responsibilities to shareholders. With power of attorney arrangements, the individual assuming power must act in the best interest of the grantor.