A fiduciary is any individual or organization who has an ethical and sometimes legal obligation to act in someone else’s best interest.
This often includes the obligation to act in good faith and fully disclose or avoid any conflicts of interest.
Fiduciary is a broad term and can describe any person or entity’s ethical duty to put their client’s interests before their own, but it is particularly important in financial relationships, and many fiduciary responsibilities have legal standards and laws they must follow.
What you need to know
A fiduciary is any trusted person or organization acting on behalf of and putting someone else’s interests before their own
While a fiduciary duty is most commonly talked about in the world of finance, it is a term that is applicable to any professional relationship
Fiduciary duty goes beyond ethics and often has legal implications
Fiduciary relationships are used to construct guidelines to protect consumers and establish standards of what a business or individual should expect when placing their trust in another
Fiduciary essentially means if you have a significant amount of control or power in a relationship, you have to avoid putting yourself first and adhere to certain standards.
Fiduciary duty guides the laws behind how people in sensitive relationships can behave and what someone should reasonably expect from someone working or serving them.
Common Types of Fiduciary Relationships
Some common fiduciary relationships include
- Guardians and their wards
- Financial advisors and their clients
- Banks and their account holders
- Accountants and their clients
- Executors and their duties to uphold a will
- Trustees and their beneficiaries
- Companies and their employees
- Companies and their shareholders
- Board members and their company
Any other relationship where someone has a significant degree of trust and power.
Industry Applications of the term 'Fiduciary'
Within the trust and wealth management industry, the term fiduciary is often used in various ways, with the most common application being used as a noun to explain an individuals role or position, i.e. "that financial advisor is a licensed fiduciary."
That being said, the word fiduciary can also be used as a verb when explaining one's actions or authority, such as "that advisor must act within their fiduciary capacity of doing what's best for everyone, regardless of their self-interest as one of the named beneficiaries."
It's also common to see the tern fiduciary used as a qualification or a descriptive benchmark, such as "in hindsight the outcome was ideal; I believe that's because the trustee conducted prudent due diligence in carrying out an incredibly high level of fiduciary standard."
What to do when a loved one dies
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Learn moreExample #1 - Executor withholds assets from beneficiaries
Let’s say someone acting as the executor or personal representative (the person charged with distributing someone’s assets according to a will) discovers a box of jewelry no one in the family knew about. If instead of adding this as an asset that will then be split between the family, they choose to not disclose this and keep that asset for themselves, that would be a clear breach of fiduciary duty.
Example #2 - Employee shares trade secrets
If an employee was working on a new product for a company and was approached by another company with an offer, say $25,000 to give them an idea of how a particular part of a product worked, and they accepted, that could be considered a breach of fiduciary duty depending on the contract and working relationship with the employer.
Example #3 - Attorney has a conflict of interest
If an attorney working on a divorce case used to be in a relationship or had an existing relationship with the opposing party and didn’t disclose this information, that would be an obvious breach of fiduciary duty.
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Nathan Phelps
Nathan is a Sr. Content Lead at Atticus and owner of Crafted Copy, a boutique copywriting and marketing shop based out of Nashville, TN. He has written hundreds of articles, white papers, and emails in industries like estate settlement, finance, and psychology, and his writing is read by millions of people across the internet each year.
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