What Is a Fiduciary?

What Is a Fiduciary?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A fiduciary is a person, organization, or company that holds a legal or ethical relationship of trust with one or more parties. Typically, a fiduciary prudently takes care of funds or assets for another party. An individual or organization in the role of a fiduciary is bound by law to act in the best interests of the other party or parties. This relationship includes good faith, trust, confidence, and a true partnership of minds. Fiduciaries might include trustees, financial advisors, bankers, attorneys, or corporate board members.

Related Questions

1. What responsibilities do fiduciaries have?

Fiduciaries have the duty of loyalty and care. The duty of loyalty requires them to put the clients’ interests ahead of their own, avoiding any conflict of interest. The duty of care means they have to provide accurate and complete information to the clients and manage their assets competently.

2. Can a fiduciary be a company?

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Yes, a fiduciary can be a corporation. Companies that often serve as fiduciaries include banks, financial advisors, and law firms. They act on behalf of their clients in their best interests.

3. What happens if a fiduciary does not perform their duty?

If a fiduciary does not perform their duty, they can be held legally accountable. This is known as a breach of fiduciary duty and can result in legal penalties, including fines and repayment of losses incurred by the party they were supposed to represent.

4. Are fiduciaries compensated?

Yes, fiduciaries are usually compensated for their services. This could be in the form of fee-only (charged by the hour, a percentage of the assets they manage, or a flat rate), commission-based, or a mix of both.

5. How to choose a fiduciary?

It’s important to look for experience, credentials, and references in choosing a fiduciary. You should also feel comfortable with their communication style. It is good practice to have an open and honest conversation about fees to ensure transparency.