Fiduciary DutyCredit Repair Definition
A legal obligation requiring one party (fiduciary) to act solely in the best interests of another party (principal).
Definition
A fiduciary duty is the highest standard of care imposed by law, requiring a person or entity (the fiduciary) to act with utmost loyalty, trust, and good faith solely in the best interests of another party (the principal or beneficiary). The fiduciary must prioritize the principal's interests above their own and avoid any conflicts of interest. This duty encompasses several obligations, including the duty of care (acting diligently and prudently), the duty of loyalty (avoiding self-dealing and conflicts), the duty of confidentiality, and the duty of disclosure (providing all relevant information). Fiduciary relationships exist in various contexts, such as between trustees and beneficiaries, corporate directors and shareholders, financial advisors and clients, and attorneys and clients.
Frequently Asked Questions
Who typically owes a fiduciary duty?
Fiduciary duties are owed by individuals or entities in positions of trust and confidence, including: trustees managing assets for beneficiaries, corporate officers and directors acting for shareholders, financial advisors providing personalized investment advice, attorneys representing clients, real estate agents acting for buyers or sellers, and executors managing estates.
What happens if a fiduciary breaches their duty?
A breach of fiduciary duty can lead to legal action by the principal or beneficiary. Remedies may include monetary damages to compensate for losses caused by the breach, disgorgement of any profits the fiduciary improperly gained, rescission of transactions, or removal of the fiduciary from their position.
Do all financial professionals have a fiduciary duty?
Not necessarily. Registered Investment Advisors (RIAs) are generally held to a fiduciary standard when providing investment advice. However, broker-dealers are often held to a lower 'suitability' standard, meaning their recommendations must be suitable for the client but not necessarily in the client's absolute best interest. It's important to understand the standard your financial professional adheres to.
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