The term “fiduciary relationship” is used to refer to a special relationship of trust between two parties. A fiduciary relationship is held by one person (the fiduciary) who has a legal responsibility to act in the best interest of another person or organization (the beneficiary). As such, fiduciaries are expected to be loyal to the beneficiary and make decisions based solely on their interests.
Typical examples of fiduciary relationships include attorney-client, doctor-patient or trust officer-beneficiary. In these and other similar relationships, the fiduciary is obliged to act in the best interest of the beneficiary — without regard to their own interests. For example, a lawyer must make decisions for their clients based solely on what their clients ask of them, not based on how it could benefit the lawyer.
The High Standard of Care
When entering a fiduciary relationship, the fiduciary is obligated to exercise a “high standard of care” — meaning they have a duty to provide knowledgeable advice and properly manage the assets entrusted to their care. This standard of care requires the fiduciary conduct due diligence and make decisions with reasonable care and skill.
If the fiduciary fails to meet this standard of care, they can be held liable for losses incurred by the beneficiary. As such, fiduciaries have a significant level of responsibility and are expected to manage the assets of beneficiaries as if they were managing their own. This includes investing, budgeting and other financial decisions that must be made on the beneficiary’s behalf.
The Duty of Loyalty
The fiduciary also must show their loyalty to the beneficiary and make decisions based solely on their interests — not their personal interests or those of any other parties. This means that a fiduciary is not allowed to take advantage of their position and use it to benefit themselves or someone else. In addition, the fiduciary must disclose any conflicts of interest and remove themselves from the decision-making process if a conflict arises.
The duty of loyalty is perhaps the most important part of any fiduciary relationship — as the beneficiary must be able to trust that the fiduciary will always act in their best interests. This trust is essential for successful relationships and allows the parties to work together to achieve their objectives.
Conclusion
Fiduciary relationships are a legal responsibility that parties must take very seriously. The fiduciary is often entrusted with a great deal of financial and legal responsibility, and is responsible for acting in the best interest of the beneficiary, exercising a high standard of care and showing loyalty. Such a relationship is a cornerstone of successful business partnerships and must be respected.