What Does Fiduciary Mean?

A fiduciary relationship is one of trust, honesty and responsibility – and it’s essential to many financial transactions. Fiduciary comes from Latin and means “trustee,” so that gives us a hint at what it means when it comes to financial dealings. To understand more, let’s take a closer look.

What Type of Relationship is a Fiduciary Relationship?

A fiduciary relationship means the parties involved have a duty to act in the best interests of each other. A fiduciary relationship is usually formed when one party, the fiduciary, takes responsibility for managing financial assets and resources for another party, the beneficiary. The fiduciary is duty-bound to act in the sole interests of the beneficiary and to exercise the highest level of care and skill.

The fiduciary typically has complete discretionary or advisory power over the beneficiary’s financial affairs. As a result, the beneficiary must rely on their fiduciary to use sound judgement and honest practices.

Examples of Fiduciary Relationships

Fiduciary relationships commonly exist between attorneys and their clients, agents and principals, financial advisors and their clients, bankers and their account holders, and trustees and their beneficiaries.

In each of these relationships, the fiduciary has a duty to use prudence when acting on the behalf of the beneficiary, to be truthful and not to take advantage of their position. This means that they may not use the beneficiary’s money as their own, and they may not receive any personal benefit while acting as a fiduciary.

The Importance of Fiduciary Responsibilities

In the financial services industry – and any industry where fiduciary responsibilities are taken seriously – the fiduciary must always put the interests of the beneficiary first. This requires a great deal of trust, both on the part of the beneficiary and the fiduciary.

The importance of fiduciary responsibilities is also framed by international law, which states that where a fiduciary relationship exists, the fiduciary must be truthful, scrupulous, and transparent in all their dealings and transactions.

There are a variety of other legal ramifications, too. If a fiduciary is proven to have violated his or her fiduciary responsibilities, they may be held personally liable for the losses that occur.

The fiduciary is trusted with the best interests of the beneficiary and must always act in an ethical and transparent manner. When taking on a fiduciary role, it is important to fully understand the responsibilities and obligations that come with it.