A fiduciary duty is one of the highest duties known to law. The person bestowed with this duty holds another’s confidence and trust. Attorneys, brokers and financial advisors all have similar obligations. They owe their customers loyalty, care and good faith. Breach of fiduciary duty could result in financial disaster for the client.
Defining a fiduciary relationship
Essentially, a fiduciary owes a duty to someone or something else. They have a set of obligations and owe the highest degree of care and devotion to the beneficiary. Clarifying what a fiduciary’s duties entail is the first step to identifying if a breach has occurred.
- Exercise due care. A fiduciary has no other option than to protect the beneficiary. They hold a special relationship that involves careful decision-making and use their professional skills to help the individual. Reasonable care is an important duty.
- Avoid conflict of interest. A fiduciary must take strict care to ensure no conflict of interest arises between them and their principal or beneficiary. In addition, the fiduciary must disclose any potential conflict of interests as they occur. They should also be proactive in avoiding potential conflicts, and do their best to investigate any risks.
- Understand personal liability. Investors, business partners and other professional advisors can be held personally liable for violating these duties. The law will generally impose liability directly to the fiduciary if they acted negligently.
Your investor or financial advisor should never use your assets to their own benefit, especially if their intentions are not fully disclosed. Business partnerships work the same way: Each partner has a fiduciary duty. Any decisions that put the business or your investments at risk might breach fiduciary duty.
Problems oftentimes arise when financial advisors recommend unsuitable investments. Perhaps they pressured you to make an investment despite the evident risks, or maybe it went against your stated goals. There are many ways a breach of fiduciary duty can happen. If you have experienced significant financial harm and you believe it’s due to a professional relationship, be sure explore your legal options.