Category Archives: Fiduciary Duty

fiduciary duty legal definition of fiduciary duty

fiduciary (redirected from fiduciary duty)

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Fiduciary

An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.

A fiduciary relationship encompasses the idea of faith and confidence and is generally established only when the confidence given by one person is actually accepted by the other person. Mere respect for another individual’s judgment or general trust in his or her character is ordinarily insufficient for the creation of a fiduciary relationship. The duties of a fiduciary include loyalty and reasonable care of the assets within custody. All of the fiduciary’s actions are performed for the advantage of the beneficiary.

Courts have neither defined the particular circumstances of fiduciary relationships nor set any limitations on circumstances from which such an alliance may arise. Certain relationships are, however, universally regarded as fiduciary. The term embraces legal relationships such as those between attorney and client, Broker and principal, principal and agent, trustee and beneficiary, and executors or administrators and the heirs of a decedent’s estate.

A fiduciary relationship extends to every possible case in which one side places confidence in the other and such confidence is accepted; this causes dependence by the one individual and influence by the other. Blood relation alone does not automatically bring about a fiduciary relationship. A fiduciary relationship does not necessarily arise between parents and children or brothers and sisters.

The courts stringently examine transactions between people involved in fiduciary relationships toward one another. Particular scrutiny is placed upon any transaction by which a dominant individual obtains any advantage or profit at the expense of the party under his or her influence. Such transaction, in which Undue Influence of the fiduciary can be established, is void.

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Breach of Fiduciary Duty Law & Legal Definition

Breach of Fiduciary Duty Law & Legal Definition

A fiduciary duty is an obligation to act in the best interest of another party. For instance, a corporation’s board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust’s beneficiaries, and an attorney has a fiduciary duty to a client.

A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence, and reliance on the fiduciary to exercise his discretion or expertise in acting for the client. The fiduciary must knowingly accept that trust and confidence to exercise his expertise and discretion to act on the client’s behalf.

When one person does agree to act for another in a fiduciary relationship, the law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the client, or from acting for his own benefit in relation to the subject matter. The client is entitled to the best efforts of the fiduciary on his behalf and the fiduciary must exercise all of the skill, care and diligence at his disposal when acting on behalf of the client. A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client.

via Breach of Fiduciary Duty Law & Legal Definition.

fiduciary duty legal definition of fiduciary duty

fiduciary (redirected from fiduciary duty)

Also found in: Dictionary/thesaurus, Medical, Financial, Encyclopedia, Wikipedia.

Fiduciary

An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.

A fiduciary relationship encompasses the idea of faith and confidence and is generally established only when the confidence given by one person is actually accepted by the other person. Mere respect for another individual’s judgment or general trust in his or her character is ordinarily insufficient for the creation of a fiduciary relationship. The duties of a fiduciary include loyalty and reasonable care of the assets within custody. All of the fiduciary’s actions are performed for the advantage of the beneficiary.

Courts have neither defined the particular circumstances of fiduciary relationships nor set any limitations on circumstances from which such an alliance may arise. Certain relationships are, however, universally regarded as fiduciary. The term embraces legal relationships such as those between attorney and client, Broker and principal, principal and agent, trustee and beneficiary, and executors or administrators and the heirs of a decedent’s estate.

A fiduciary relationship extends to every possible case in which one side places confidence in the other and such confidence is accepted; this causes dependence by the one individual and influence by the other. Blood relation alone does not automatically bring about a fiduciary relationship. A fiduciary relationship does not necessarily arise between parents and children or brothers and sisters.

The courts stringently examine transactions between people involved in fiduciary relationships toward one another. Particular scrutiny is placed upon any transaction by which a dominant individual obtains any advantage or profit at the expense of the party under his or her influence. Such transaction, in which Undue Influence of the fiduciary can be established, is void.

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Meeting Your Fiduciary Responsibility

Meeting Your Fiduciary Responsibility

By Jerry Sais Jr. & Melissa W. Sais AAA |

So you volunteered to serve on the board of your local charity or other organization and you consider yourself especially lucky to have secured a seat on the investment committee. Perhaps you initially had reservations about your new appointment, but if you have a keen interest in the financial world, some investments of your own, watch CNBC and read the Wall Street Journal, you may feel that you’re qualified. However, while this may be a great way to attend investment committee meetings and receive the latest investment research from the charity’s advisor, this job shouldn’t be taken lightly.

Being a fiduciary comes with a certain level of responsibility. An investment fiduciary is any person who has the legal responsibility for managing somebody else’s money. What this really means is that you have been placed in a position of trust and there may be consequences for betrayal of that trust. In this article, we’ll discuss who is considered a fiduciary and what a fiduciary’s responsibilities entail.

Who Is Considered a Fiduciary? 
As a member of the investment committee, you may share some of the responsibility with the committee’s investment advisor. If your advisor is aRegistered Investment Advisor, he or she does share fiduciary responsibility with the investment committee. A broker, on the other hand, may not. Some brokerage firms don’t want or allow their brokers to be fiduciaries. This uncertainty makes it important to ask the advisor. Ultimately, it is the advisor’s actions that determine whether he or she is a fiduciary. Giving continuous, comprehensive advice is considered acting in a fiduciary role, while simply selling products is not.

Engaging an advisor who is willing to accept fiduciary responsibility is desirablebecause investment committee members reduce their liability by delegating some of their responsibilities to an expert. However, hiring an expert does not relieve the committee members of all of their duties. They still have an obligation to prudently select and monitor the activities of the expert; therefore, committee members still must understand what constitutes a fiduciary investment process.

A Fiduciary’s Responsibilities
A fiduciary’s main responsibility is to manage a prudent investment process. A prudent process is not as nebulous as it may sound. A fiduciary demonstrates prudence by the process through which investment decisions are managed. This means fiduciaries must have a basic outline for how they go about their responsibilities. In response to the need for guidance for fiduciaries, the nonprofit Foundation for Fiduciary Studies was established to define the following prudent investment practices:

Step 1: Organize
The process begins with fiduciaries educating themselves on the laws and rules that will apply to their situations. For example, fiduciaries of retirement plans need to understand that the Employees Retirement and Income Security Act(ERISA) is the primary legislation that governs their actions. Once fiduciaries identify their governing rules, they then need to define the roles and responsibilities of all parties involved in the process. If investment service providers are used, then any service agreements should be in writing.

Step 2: Formalize
Formalizing the investment process starts by creating the investment program’s goals and objectives. Fiduciaries should identify factors such as investment horizon, an acceptable level of risk and expectedreturn. By identifying these factors, fiduciaries create the framework for evaluating investment options.

Fiduciaries then need to select appropriate asset classes that will enable them to create a diversified portfolio through some justifiable methodology. Most fiduciaries go about this by employing modern portfolio theory (MPT) because MPT is one of the most accepted methods for creating investment portfolios that target a desired risk/return profile.

Finally, the fiduciary should formalize these steps by creating an investment policy statement, which provides the necessary detail to implement a specific investment strategy. Now the fiduciary is ready to proceed with the implementation of the investment program as identified in the first two steps.

Step 3: Implement
The implementation phase is where specific investments or investment managers are selected to fulfill the requirements detailed in the investment policy statement. A due diligence process must be designed to evaluate potential investments. The due diligence process should identify criteria used to evaluate and filter through the pool of potential investment options.

The implementation phase is usually performed with the assistance of an investment advisor because many fiduciaries lack the skill and/or resources to perform this step. When an advisor is used to assist in the implementation phase, fiduciaries and advisors must communicate to ensure that an agreed upon due diligence process is being used in the selection of investments or managers.

Step 4: Monitor
The final step can be the most time consuming and also the most neglected part of the process. Some fiduciaries do not sense the urgency for monitoring if they got the first three steps correct. Fiduciaries should not neglect any of their responsibilities, because they could be equally liable for negligence in each step.

In order to properly monitor the investment process, fiduciaries must periodically review reports that compare their investments’ performance against the appropriate index, peer group and whether the investment policy statement objectives are being met. Simply monitoring performance statistics is not enough. Fiduciaries must also monitor qualitative data, such as changes in the organizational structure of investment managers used in the portfolio. If the investment decision makers in an organization have left, or if their level of authority has changed, then investors must consider how this information may impact future performance.

In addition to performance reviews, fiduciaries must review expenses incurred in the implementation of the process. Fiduciaries are not only responsible for how funds are invested, but they are also responsible for how funds are spent. Investment fees have a direct impact on performance and fiduciaries must ensure that fees paid for investment management are fair and reasonable.

The Bottom Line
Through proper execution of the prudent investment process outlined in these four steps, trustees and investment committee members can reduce their liability by being confident that they are fulfilling their fiduciary responsibilities. Fiduciaries should embrace their responsibilities and understand that they will not be judged on the returns of their portfolio, but on the prudence employed in the creation of the returns. If fiduciaries get the process right, they should be able to achieve admirable returns for their organizations. In the end, it’s not whether you win or lose, it’s how you play the game.

via Meeting Your Fiduciary Responsibility.

Fiduciary: Harvard Law

The New Palgrave Dictionary of Economics and the Law, Definition of “fiduciary duties”

by Tamar Frankel

Vol.2, p.127-128

fiduciary duties. Fiduciary duties fall into two broad categories: the duty of loyalty and the duty of care. These duties vary with different types of relationships between fiduciaries and their counter-parties (‘entrustors’). � Recently, courts have imposed fiduciary duties on union officers, physicians and clergymen.

Fiduciary relationships appear in many legal contexts: contracts, wills, trusts and elections (e.g. of corporate directors). However, fiduciary duties and remedies draw on a common source � equity. Thus, in addition to damages � a remedy in common law � fiduciaries must account for ill-gotten profits even if their entrustors suffered no injury � a remedy in equity. The similarities and differences among fiduciary relationships explain why law regulates fiduciaries in the first place, and why the regulation varies with different classes of fiduciaries. Therefore, before discussion fiduciary duties we discuss the features by which fiduciary relationships can be recognized.

Features of Fiduciary Relationships. (1) Fiduciary relationships are service relationships, in which fiduciaries provide to entrustors services that public policy encourages. Bailees, escrow agents, agents, brokers, corporate directors and officers, partners, co-venturers, lawyers and trustees all render service to entrustors. Some fiduciaries, such as partners, may be both fiduciaries and entrustors of each other.

(2) To perform their services effectively, fiduciaries must be entrusted with power over the entrustors or their property (‘power’). The extent of entrusted power varies with the parties’ desires and terms of their arrangements. � Arrangements in which entrustors are precluded from controlling their fiduciaries in the performance of their services, categorized in law as ‘trust’, vest far more power in the fiduciaries than arrangements, categorized in law as ‘agency’, in which entrustors control their fiduciaries in the performance of their services. The extent of vested power depends also on the freedom of entrustors to remove their fiduciaries and retrieve the entrusted property. � The magnitude of the powers entrusted to fiduciaries is also related to the cost of specifying the fiduciaries’ future actions. Thus the services of escrowees and bailees, which do not require broad discretion, can be spelled out easily in advance, while the services of investment managers and trustees, which require broader discretion, can be described only in general terms because the details depend on future unknown circumstances.

(3) The sole purpose of entrustment is to enable fiduciaries to serve their entrustors. Entrustment enables fiduciaries to use entrusted power for other purposes � for their own use or the use of third parties. Entrustors’ losses from abuse of entrusted powers can be higher than their benefits from the fiduciaries’ services. therefore, and entrustor will not hand over $100 to a fiduciary if the probably loss of the $100 from the fiduciary’s embezzlement, (e.g., a 50% chance) exceeds the expected gain from the relationship (e.g. $5).

(4) Entrustors’ costs of monitoring fiduciaries’ use of entrusted power are likely to exceed entrustors’ benefits from the relationship. For example, if the adviser’s interests conflict with those of the entrustors, the value of their advice, even their expert advice, is doubtful. Monitoring such conflicts of interest is costly. Similarly, the very utility of the relationship for clients would be undermined if the clients must watch over their discretionary investment managers to prevent abuse of power.

(5) Entrustors’ costs of monitoring the quality of fiduciary services are likely to be very high, because most fu services involve expertise that entrustors do not possess. These monitoring costs may exceed the benefits to entrustors from the relationship. � In addition, the quality of some services cannot be determined by their results: a defendant may lose his case even if his lawyer has performed brilliantly. The quality of some services cannot be easily established at the time of performance: it may take years to discover that a will is faulty.

(6) The fiduciaries’ costs of reducing the entrustors’ monitoring costs may exceed the benefits to fiduciaries from the relationship. Fiduciaries can reduce entrustors’ monitoring costs by ‘bonding’, insurance and third-party guarantees, provided their costs do not exceed their benefits from the relationship. Because of these limits, their efforts may not e enough to fully cover the entrustors’ risk of loss.

(7) Alternative external controls that reduce entrustors’ risks, such as market controls, either do not exist or are too weak. Courts recognize new fiduciary relations when, in their opinion, the historical protections of entrustors have eroded. For example, physicians recently joined the family of fiduciaries as they became involved in conflict of interest situations � when physicians own pharmacies that supply their patients’ medicines, or when the interests of the physicians’ employers conflict with the patients’ optimal medical treatment.

via http://cyber.law.harvard.edu/trusting/unit5all.html

Meeting Your Fiduciary Responsibilities

Meeting Your Fiduciary Responsibilities

Offering a retirement plan can be one of the most challenging, yet rewarding, decisions an employer can make. The employees participating in the plan, their beneficiaries, and the employer benefit when a retirement plan is in place. Administering a plan and managing its assets, however, require certain actions and involve specific responsibilities.

To meet their responsibilities as plan sponsors, employers need to understand some basic rules, specifically the Employee Retirement Income Security Act (ERISA). ERISA sets standards of conduct for those who manage an employee benefit plan and its assets (called fiduciaries). Meeting Your Fiduciary Responsibilities provides an overview of the basic fiduciary responsibilities applicable to retirement plans under the law.

This booklet addresses the scope of ERISA’s protections for private-sector retirement plans (public-sector plans and plans sponsored by churches are not covered by ERISA). It provides a simplified explanation of the law and regulations. It is not a legal interpretation of ERISA, nor is it intended to be a substitute for the advice of a retirement plan professional. Also, the booklet does not cover those provisions of the Federal tax law related to retirement plans.

What Are The Essential Elements Of A Plan?

Each plan has certain key elements. These include:

A written plan that describes the benefit structure and guides day-to-day operations;

A trust fund to hold the plan’s assets(1);

A recordkeeping system to track the flow of monies going to and from the retirement plan; and

Documents to provide plan information to employees participating in the plan and to the government.

Employers often hire outside professionals (sometimes called third-party service providers) or, if applicable, use an internal administrative committee or human resources department to manage some or all of a plan’s day-to-day operations. Indeed, there may be one or a number of officials with discretion over the plan. These are the plan’s fiduciaries.

Who Is A Fiduciary?

Many of the actions involved in operating a plan make the person or entity performing them a fiduciary. Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of that discretion or control. Thus, fiduciary status is based on the functions performed for the plan, not just a person’s title.

A plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan’s operation. The named fiduciary can be identified by office or by name. For some plans, it may be an administrative committee or a company’s board of directors.

A plan’s fiduciaries will ordinarily include the trustee, investment advisers, all individuals exercising discretion in the administration of the plan, all members of a plan’s administrative committee (if it has such a committee), and those who select committee officials. Attorneys, accountants, and actuaries generally are not fiduciaries when acting solely in their professional capacities. The key to determining whether an individual or an entity is a fiduciary is whether they are exercising discretion or control over the plan.

A number of decisions are not fiduciary actions but rather are business decisions made by the employer. For example, the decisions to establish a plan, to determine the benefit package, to include certain features in a plan, to amend a plan, and to terminate a plan are business decisions not governed by ERISA. When making these decisions, an employer is acting on behalf of its business, not the plan, and, therefore, is not a fiduciary. However, when an employer (or someone hired by the employer) takes steps to implement these decisions, that person is acting on behalf of the plan and, in carrying out these actions, may be a fiduciary.

via Meeting Your Fiduciary Responsibilities.

Fiduciary – Wikipedia, the free encyclopedia

Fiduciary

From Wikipedia, the free encyclopedia

This article is about the legal term. For optical field-of-view markers, see Fiduciary marker.

The court of chancery, which governed fiduciary relations in England prior to the Judicature Acts

A fiduciary is a legal or ethical relationship of trust between two or more parties. Typically, a fiduciary prudently takes care of money for another person. One party, for example a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to the other one, who for example has entrusted funds to the fiduciary for safekeeping or investment. Likewise, asset managers—including managers of pension plans, endowments and other tax-exempt assets—are considered fiduciaries under applicable statutes and laws.[1] In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance, and trust in another whose aid, advice or protection is sought in some matter.[2] In such a relation good conscience requires the fiduciary to act at all times for the sole benefit and interest of the one who trusts.

A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.

—Lord Millett, Bristol and West Building Society v Mothew[3]

A fiduciary duty[4] is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (the “principal”): such that there must be no conflict of duty between fiduciary and principal, and the fiduciary must not profit from his position as a fiduciary[5](unless the principal consents).[6]

In English common law the fiduciary relation is arguably the most important concept within the portion of the legal system known as equity. In the United Kingdom, the Judicature Acts merged the courts of equity (historically based in England’s Court of Chancery) with the courts of common law, and as a result the concept of fiduciary duty also became available in common law courts.

When a fiduciary duty is imposed, equity requires a different, arguably stricter, standard of behavior than the comparable tortious duty of care at common law. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without knowledge and consent. A fiduciary ideally would not have a conflict of interest. It has been said that fiduciaries must conduct themselves “at a level higher than that trodden by the crowd”[7] and that “[t]he distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty”.[8]

via Fiduciary – Wikipedia, the free encyclopedia.

Fiduciary Duty | Wex Legal Dictionary / Encyclopedia | LII / Legal Information Institute

Fiduciary Duty

Definition

A fiduciary duty is a legal duty to act solely in another party’s interests. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. Fiduciaries may not profit from their relationship with their principals unless they have the principals’ express informed consent. They also have a duty to avoid any conflicts of interest between themselves and their principals or between their principals and the fiduciaries’ other clients. A fiduciary duty is the strictest duty of care recognized by the US legal system.

Examples of fiduciary relationships include those between a lawyer and her client, a guardian and her ward, and a director and her shareholders.

See, e.g., LaRue v. DeWolff, Boberg, & Associates, Inc.

 

Keywords:

via Fiduciary Duty | Wex Legal Dictionary / Encyclopedia | LII / Legal Information Institute.