What is a Fiduciary?
Fiduciary is basically an individual or organization who/which performs the duties on behalf of others in good faith and trust. Along with the responsible position, it is also important to ensure that the duty is done ethically as well as on the best interests of the client. The role of fiduciary is to ensure the management of finances and management of assets of other parties or of a group of people. Typically, the fiduciaries can be in different job roles like managing finances, managers in the banking segment or accountant.
BREAKING DOWN ‘Fiduciary’
The role of fiduciary is a legal and ethical job which has set responsibilities or duties to be performed. When any fiduciary is selected by the client then the person has to act in best interest of the party to manage the assets. The fiduciary should not look for personal interest, profit or benefits while managing the assets of the other party. As per the standard of 1830 court ruling, it is known as prudent person standard of care. As per the formulation, the prudent person rule was defined and prudent-person rule came into existence fiduciary.
In order to prevent the issues between the fiduciaries and the principal, stringent care is taken. Fiduciaries cannot take undue advantages of their position by making a profit, be benefiting or enjoy the assets of the principle. This was defined in the case (Keech vs. Sandford (1726)) at the English high court. Further, no profit should be made by the fiduciary without the prior approval of the client or at the time of the agreement. If the authority is given by the principal then the fiduciary is free to generate profit or keep the benefits as decided mutually. The benefits can be in the form monetary or broadly as an opportunity.
Types of Fiduciary Relationships
The role fiduciary includes a wide range of responsibilities depending on the type of business relationships. Some of the most commonly used fiduciary business options are the trustee and the beneficiary. Few other fiduciary relations are:
- Shareholders of the company and the members of company’s board
- Company’s executors as well as the legatees
- Guardians of the company as well as the wards
- Promoters and stockholders
- Lawyers as well as the Clients
- Investment corporations and investors
Any estate arrangements and implemented trusts have a trustee and a beneficiary. Generally, the individual who acts as the trust or trustee is considered as the fiduciary, and the beneficiary is the individual who takes care of the principal. As per the trustee and beneficiary responsibility, the fiduciary is holds the ownership of the asset for the principle and has necessary powers to handle the assets on behalf of the owner. The fiduciary takes the decision that is in the best interest of the beneficiary as the later will have the equitable rights to the property. The trustee/beneficiary is important for managing the estate planning and taking care of the property efficiently.
In order to avoid any kind of conflict or scandals, politicians setup blind trusts. The simple definition of blind trust that the trustee is appointed by the beneficiary for the investments but the beneficiary will not be aware how the corpus is being invested. Whether the beneficiary is aware or not the fiduciary is responsible for investing the corpus and following the prudent person standard of conduct.