Fiduciary duties are fundamental to a range of professional and legal relationships, ensuring that those who have been put in a position of trust are acting in the best interests of those they serve.
At Brown Turner Ross, we serve as fiduciaries for our clients; every decision we make is guided by their best interests. As fiduciaries, we are subject to rigorous responsibilities of loyalty, care, and integrity and uphold a clear duty to our clients.
In this blog, we will explore the strict obligations fiduciaries are bound to follow, the implications of breaching these obligations, and how they are enforced to protect clients, shareholders, and beneficiaries. Our goal is to provide you with a deeper understanding of fiduciary duties.
What are Fiduciary Duties?
Fiduciary duty refers to legal obligations that require an individual to act in the best interests of another individual or entity. Someone with fiduciary duties tends to manage another individual’s money or assets, working with trust and confidence and acting in the best interest of that individual.
Fiduciary duties are common in corporate governance, estate management, financial advising, and other professional relationships that depend on trust. Neglecting or breaching a fiduciary duty can have severe consequences, including legal action and removal from the position.
Why Might Someone Be Appointed as a Fiduciary?
A fiduciary is appointed when a person requires another party to manage assets or make important decisions on their behalf. The fiduciary is expected to put the needs of the beneficiary ahead of their own and operate with a high level of long term trust and loyalty.
The role of a fiduciary is especially important when someone is unable to manage their own affairs, which tends to occur due to capacity, age and other circumstances.
Fiduciary duties are legally enforceable, so if a fiduciary breaches their statutory duty, they may be held liable for any damages caused.
Types of Fiduciary Duties
Fiduciary duties represent legal obligations that mandate a fiduciary to act in the best interests of a beneficiary. These duties encompass:
Duty of Care
The fiduciary is expected to act with diligence, competence and good judgment when making decisions. You are expected to use reasonable prudence when making decisions and taking any actions for the interests of the company or person that you are working for.
Duty of Loyalty
The duty of loyalty requires that the fiduciary acts solely in the best interest of the beneficiaries they serve. As a part of this duty, you are expected to avoid conflicts of interest and any actions that could compromise your impartiality.
An example of this can relate to the fiduciary duty of a director of a company. A company director is not allowed to prioritise their financial gain over the welfare of a company. Many fiduciaries often have to make self-sacrifices to fulfil their duty to act with loyalty and the success of the company in mind.
Duty of Good Faith
Every fiduciary is responsible for acting in good faith and fairly in all dealings. They are expected to uphold ethical standards, even when legal guidelines are unclear. For example, as solicitors, we are expected to provide legal advice that serves the client’s best interest, even if it is not the most profitable route for our firm.
This is why we often recommend Alternative Dispute Resolution, such as mediation, to our clients. It is the best solution in civil cases, even if it means we do not benefit financially.
Duty of Confidentiality
As a fiduciary, you are entrusted with sensitive information that usually needs to remain private. You are expected to protect this information and not misuse it for personal gain or share it without authorisation.
A great example of this is when you disclose information to a financial adviser. They are not allowed to disclose their investment strategies to others, or they may face legal consequences.
Duty to Disclose
Fiduciaries are expected to provide beneficiaries with complete and accurate information and not withhold information that may influence their decision-making.
For example, if a company director becomes aware of potential financial risks, they must disclose this information to their shareholders to ensure that their interests are protected.
Examples of Fiduciary Roles
Now that you have a better understanding of fiduciaries’ duties, we will explain further examples of fiduciary roles.
Trustees
Trustees are responsible for managing assets such as money and property on behalf of beneficiaries. They are expected to act prudently and make decisions that benefit all involved parties, not themselves. Trustees bear the responsibility of managing all assets in a manner that prioritises the best interests of the beneficiary.
This responsibility highlights the importance of making careful decisions and seeking expert advice when drafting a trust and appointing a trustee; It is important to ensure that you are selecting the right person for the role.
Directors
Company directors have fiduciary duties, which must be carried out in the company’s and its shareholders’ best interests. They are expected to use their expertise and experience to make informed business decisions and avoid conflicts of interest.
There have been instances in the past where a director has approved a business deal that benefited their personal company at the expense of the company, which is an example of breaching a fiduciary duty.
If a director of a company breaches their fiduciary duty, director disputes may occur.
Financial Advisors
Financial advisors are obligated to exercise due diligence, integrity, and transparency in managing their clients’ investments. They must deliver guidance that prioritises the client’s financial well-being rather than being influenced by personal commissions or incentives.
It is important for financial advisors to make recommendations based on what will benefit their clients rather than what will give them a higher commission.
Executors of a Will
Executors have the fiduciary responsibility of administering a deceased person’s estate fairly and in accordance with the terms outlined in the deceased’s will. If an executor of a will does not fulfil their fiduciary duties, contentious probate issues may arise between beneficiaries and executors.
Partners in a Business Partnership
Partners in a business owe each other a duty of loyalty and good faith. They should not act in their own self-interest and are expected to avoid actions that may harm the business or give them an unfair advantage.
Fiduciary duties in a partnership depend on mutual self-respect for each other and ensuring that each partner protects the interests of all involved parties.
Solicitors
Legal practitioners are obligated to prioritise their clients’ interests by providing competent legal counsel, preserving confidentiality, and avoiding potential conflicts of interest.
At Brown Turner Ross, all of our solicitors take their roles as legal fiduciaries seriously. We will always prioritise the best interests of our clients and promote the success of the business, even if it means sacrificing our profits.
What Happens if a Fiduciary Duty is Breached?
When fiduciaries fail to uphold these duties, there could be legal consequences. Breaches can result in civil claims, financial penalties and even removal from their position. Criminal charges may also apply depending on the circumstances.
The courts may also insist that any fiduciaries who have breached their duties compensate for any financial loss caused by their actions, transactions or arrangements.
Fiduciary Breach Claims With Brown Turner Ross
If you believe that a fiduciary has misbehaved or breached their duties, we strongly advise that you turn to legal counsel.
At Brown Turner Ross, we have not only acted as fiduciaries, but we have given other fiduciaries guidance on their responsibilities and supported civil cases against those who have breached their duties.
If you need advice and legal counsel, contact our team today.