Fiduciary duty is a legal responsibility when managing assets on behalf of someone else. Those in this position must act with loyalty and care, putting the client’s interests first and avoiding conflicts of interest. Breaching this duty can result in legal penalties. Contracts are often signed to outline responsibilities.
A fiduciary duty is a legal liability created when a person agrees to act as an agent on behalf of someone else to manage assets. Some examples of situations where fiduciary duty may arise include attorney-client relationships, executors of estates, members of the board of directors of a publicly traded company, and relationships between real estate agents and their clients. In all of these cases, an individual is trusted to handle goods responsibly and wisely from a customer, and the person entrusted with the goods is held to a very high standard of behaviour.
A person in a position of fiduciary duty is expected to act with loyalty, putting the client’s interests first in all matters. They represent their clients in negotiations and have to defend their clients, such as when a real estate agent negotiates the best deal on the sale of real estate, taking into account the clients’ needs. People in this position are not allowed to have any conflicts of interest, or even to have the appearance of a conflict. In an obvious example, a lawyer cannot represent both sides of a case.
Additionally, a person in this position is expected to act with care. While an individual with a fiduciary duty may have official ownership of the customer’s assets, such a person must treat those assets with particular care, respecting the customer’s requests and needs. Brokers cannot treat the assets they control as their own, for example, because they hold them on behalf of clients and are expected to execute trades that will serve their clients’ best interests. This can mean making decisions they may not be inclined to make on their own.
Legally, these relationships are held to a high standard, recognizing a potential for abuse. When people entrust assets, legal rights, and other matters to other individuals, they entrust those individuals to act with care and loyalty in the performance of the duties entrusted to them. Failure to comply is considered a breach of fiduciary duty and may result in legal penalties. For example, if members of a company’s board of directors vote on an agreement that goes against the interests of shareholders, shareholders have legal remedies available to address the issue.
In a relationship where fiduciary duty is created, both parties will typically sign contracts setting out their rights and responsibilities. People who want to understand their rights and responsibilities more clearly can ask for them to be explained or consult a lawyer for information on legal guidelines in a given situation.
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