Published on May 10th, 2013 by Alan L Sklover
What is the meaning of:
“Fiduciary” means “relation of utmost trust, care and confidence.” It refers to both (a) the relation of utmost trust, and (b) the person who assumes the relation of utmost trust. Fiduciaries must protect the interests of another person or organization, commonly called the “beneficiary.”
Common examples of fiduciaries include a Board Member of an organization, an Attorney for a client, a Guardian for a child or legally incompetent person, an Executor of an estate, or Trustee of a trust fund.
Trust: The fiduciary relation is the most highly trusted – and strictly scrutinized – relation there is in the law. It is so trusted and scrutinized by the law that a fiduciary must even ignore his or her own interests whenever they are in conflict or potential conflict with the interests of those served. Fiduciaries are held personally accountable to their beneficiaries if they fail to fulfill their fiduciary duties.
A central duty of a fiduciary is to avoid any conflict of interest with those for whom he or she is a fiduciary. For example, a Board Member of a not-for-profit organization should not engage in any business dealings, directly or indirectly, with that organization.
Care: Also, a fiduciary is not permitted to take unwarranted risks on behalf of beneficiaries he or she serves as a fiduciary. A fiduciary should never make risky investments, or mix his or her own monies with monies of those he or she serves.
A fiduciary must be duly diligent, watchful, protective and risk-averse, similar in many respects to the way a parent of a young child must be.
Confidence: A fiduciary must honor and fulfill a “duty to know” the important facts regarding the beneficiary’s affairs. Thus, a fiduciary cannot plead “I did not know” facts he or she should have known.
Nor can a fiduciary keep secrets from his or her beneficiaries and his or her co-fiduciaries, but has an absolute duty of candor with them. If facts pertain to the affairs of those the fiduciary serves, they must be disclosed, both to the beneficiary and to all co-fiduciaries. Thus, there can be no “secrets.”
In the employment context, “fiduciary” obligations arise when the employee is assigned the task of overseeing funds or requested to act on behalf of the interests of the employer outside the employment, for example, to represent the employer’s interests in a trade organization or on the Board of another organization.
Since fiduciaries voluntarily take on very significant obligations, it is not at all unreasonable for a fiduciary to request insurance from claims, or indemnification from lawsuits, or other protections from potential fiduciary-related claims or expenses that might arise. This is especially the case when employees are asked to take on a fiduciary role as part of his or her job. Paying premiums on a fiduciary “bond” obtained from an insurance company is the most common way this is achieved, although nothing – not the law or any insurance – will protect a fiduciary from gross negligence, willful ignorance or dishonest acts.
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