Fiduciary responsibility
Table of Contents
Fiduciary responsibility
The highest quality of care under law or justice is a fiduciary duty. If fiduciaries breach their duty, they can be held liable for any losses. A fiduciary duty can be imposed by law or by contract. For example, directors and officers of a company have a fiduciary obligation to the company and its shareholders.
Therefore, a fiduciary must not only act in good faith but also have the intention of benefiting the person to whom they owe a duty.
What is fiduciary responsibility?
A fiduciary is entrusted with caring for another person’s property or money. To serve in the best interests of the individual who has trusted you with their money or property is a fiduciary responsibility.
This duty comprises a responsibility of care and devotion. The duty of loyalty requires you to act in the best interest of the person you represent and not to put your interests ahead of theirs. The duty of care requires you to exercise reasonable care in managing the property or money you have been entrusted with.
Corporations and fiduciary responsibility
Fiduciary duties, also known as responsibilities of trust, are created when your company or organization is organized as a corporation. Fiduciary duties are corporate officers’ and directors’ obligations to the company and its investors.
The board of directors designates corporate officials and assigns them specific responsibilities in addition to setting business policies. Corporate officials carry out your for-profit or nonprofit firm’s everyday activities such as the president or chief executive officer, treasurer or chief financial officer, and corporate secretary.
There is a fiduciary responsibility of corporations to their shareholders. This fiduciary responsibility includes making decisions in the best interests of shareholders and acting in good faith. This responsibility is a legal obligation and is enforceable by law. In several cases, shareholders have sued corporations for breach of fiduciary responsibility.
Importance of fiduciary responsibility
The fiduciary responsibility or duty is of utmost importance because it is the cornerstone of a trusting and successful relationship between a fiduciary and the person to whom they owe this duty.
This duty requires the fiduciary to act in the best interests of the person they represent and to avoid any conflict of interest. A breach of this duty can have serious consequences, both legal and financial.
What are the different fiduciary responsibilities?
A stockholder who holds a majority stake in a business or has influence over its operations may occasionally be obligated to perform fiduciary responsibilities. Directors, officials, and the controlling shareholder may all be personally liable for a breach of fiduciary responsibility.
There are six different types of fiduciary duties.
- Duty of loyalty
The fiduciary has a responsibility of loyalty to serve the interests of the beneficiaries above their own and to avoid clear conflicts of interest. This relates to always acting in the beneficiary’s best interest and prioritizing their well-being.
- Duty of good faith
This obligation entails acting in the beneficiary’s best interests while always abiding by the law. The fiduciary should never behave in a way that is not compliant with the law.
- Duty of prudence/care
Fiduciaries are required to handle situations and make judgments involving the interest of beneficiaries with the utmost professionalism, prudence, and critical risk awareness.
- Duty of care
According to the duty of care, the fiduciary must take reasonable care and act in the beneficiaries’ best interests. It can entail carefully weighing the pros and cons of several possibilities and making wise decisions.
- Duty of confidentiality
The fiduciary must keep all information about the beneficiary confidential and private. They must not misuse it in any way, whether said or written, for their benefit.
- Duty of disclosure
Fiduciaries are obliged to behave completely, honestly, and freely, providing any important facts that could affect their capacity to fulfill their fiduciary obligations and the success of a beneficiary’s interests.
Breach of fiduciary responsibility
A fiduciary must behave in the best interests of the person they are entrusted with representing, not for their own benefit.
If fiduciaries breach their responsibility or duty, they could be held liable for any losses the person they were representing suffers. This could include financial losses and any emotional distress that may have been caused. In some cases, a fiduciary may also be required to pay damages.
Frequently Asked Questions
The obligations that directors have to the corporation and its shareholders are known as their fiduciary responsibilities. These obligations include the duties of loyalty and compassion. Directors have a responsibility to act in the best interests of the company by making wise judgments. Directors have a responsibility of loyalty to act in the corporation’s best interest, not their own or the interests of any other party.
When the person operating in the fiduciary role violates that trust, generally by working in their own interests instead of the other party’s, they are said to have committed a breach of fiduciary responsibility. This can happen in many ways, such as taking advantage of the other party’s trust, using information that the other party has shared in confidence, or engaging in insider trading.
A fiduciary is entrusted with the care of property or money for another person. Fiduciaries must always act in the best interests of the person they represent and not put their interests ahead of those they represent. If fiduciaries breach their duty, they can be held liable for any losses that the person they represent suffers.
If you breach your fiduciary duty, you can be held liable for any losses that result from your actions. Furthermore, you might face civil or criminal consequences. If you are found to have breached your fiduciary duty, you may be removed from your position and barred from serving in a fiduciary capacity in the future.
A violation of fiduciary duty by an executor or trustee may lead to their dismissal, suspension, and a surcharge, a court order forcing them to make restitution for the harm the breach has caused. Fiduciaries may be charged with a crime in rare circumstances.
Related Terms
- Payroll deduction plan
- Operating expenses
- Demand elasticity
- Deferred compensation
- Conflict theory
- Acid-test ratio
- Withholding Tax
- Benchmark index
- Double Taxation Relief
- Debtor Risk
- Securitization
- Yield on Distribution
- Currency Swap
- Amortisation
- Overcollateralization
- Payroll deduction plan
- Operating expenses
- Demand elasticity
- Deferred compensation
- Conflict theory
- Acid-test ratio
- Withholding Tax
- Benchmark index
- Double Taxation Relief
- Debtor Risk
- Securitization
- Yield on Distribution
- Currency Swap
- Amortisation
- Overcollateralization
- Efficient Frontier
- Listing Rules
- Green Shoe Options
- Accrued Interest
- Market Order
- Accrued Expenses
- Target Leverage Ratio
- Acceptance Credit
- Balloon Interest
- Abridged Prospectus
- Data Tagging
- Perpetuity
- Optimal portfolio
- Hybrid annuity
- Investor fallout
- Intermediated market
- Information-less trades
- Back Months
- Adjusted Futures Price
- Expected maturity date
- Excess spread
- Quantitative tightening
- Accreted Value
- Equity Clawback
- Soft Dollar Broker
- Stagnation
- Replenishment
- Decoupling
- Holding period
- Regression analysis
- Amortisation
- Wealth manager
- Financial plan
- Adequacy of coverage
- Actual market
- Credit risk
- Insurance
- Financial independence
- Annual report
- Financial management
- Ageing schedule
- Global indices
- Folio number
- Accrual basis
- Liquidity risk
- Quick ratio
- Unearned Income
- Sustainability
- Value at risk
- Vertical analysis
- Residual maturity
- Operating margin
- Trust deed
- Leverage
- Profit and loss statement
- Junior market
- Affinity fraud
- Base currency
- Working capital
- Individual Savings Account
- Redemption yield
- Net profit margin
- Fringe benefits
- Fiscal policy
- Escrow
- Externality
- Multi-level marketing
- Joint tenancy
- Liquidity coverage ratio
- Hurdle rate
- Kiddie tax
- Giffen Goods
- Keynesian economics
- EBITA
- Risk tolerance
- Budget deficit
- Disbursement
- Bayes’ theorem
- Amalgamation
- Adverse selection
- Contribution margin
- Accounting equation
- Value chain
- Gross Income
- Net present value
- Liability
- Leverage ratio
- Inventory turnover
- Gross margin
- Collateral
- Being Bearish
- Being Bullish
- Commodity
- Exchange rate
- Basis point
- Inception date
- Riskometer
- Trigger Option
- Zeta model
- Racketeering
- Market Indexes
- Short Selling
- Quartile rank
- Defeasance
- Cut-off-time
- Business-to-Consumer
- Bankruptcy
- Acquisition
- Turnover Ratio
- Indexation
- Benchmark
- Pegging
- Illiquidity
- Backwardation
- Backup Withholding
- Buyout
- Beneficial owner
- Contingent deferred sales charge
- Exchange privilege
- Asset allocation
- Maturity distribution
- Letter of Intent
- Emerging Markets
- Consensus Estimate
- Cash Settlement
- Cash Flow
- Capital Lease Obligations
- Capital Gains or Losses
- Balance Sheet
- Capital Lease
Most Popular Terms
Other Terms
- Variable annuity
- Applicable federal rate
- Asset management
- Assets under management
- Automated teller machine
- New fund offer
- Interest rate risk
- Short Call
- Rho
- Put Option
- Premium
- Out of the money
- Option Chain
- Open Interest
- Long Put
- Long Call
- Intrinsic Value
- In the money
- Implied volatility
- Bull Put Spread
- Gamma
- Expiration date
- Exercise
- European Option
- Delta
- Covered Put
- Covered Call
- Call Option
- Bear Put Spread
- Bear Call Spread
- American Option
- Safe-Haven Currencies
- Lot
- Strangle
- Liquidity
- Pip
- Commodity Currencies
- Short Put
- Carry Trade
- Volume
- Uptrend
- Vega
- Underlying
- Time Value
- Time Decay
- Theta
- Support
- Risk-Reward Ratio
- Reversal
- Retracement
Know about
Tools/Educational Resources
Markets Offered by POEMS
Read the Latest Market Journal

Is There a “Fairest of Them All”?
In a world consumed by constant struggles and the unyielding demands of responsibilities such as...

In a dynamic financial landscape, adaptability is the name of the game. At Phillip Securities,...

Weekly Updates 2/10/23 – 6/10/23
This weekly update is designed to help you stay informed and relate economic and company...

Weekly Updates 25/9/23 – 29/9/23
This weekly update is designed to help you stay informed and relate economic and company...

Top traded counters in August 2023
Start trading on POEMS! Open a free account here! The market at a glance: US...

Weekly Updates 18/9/23 – 22/9/23
This weekly update is designed to help you stay informed and relate economic and company...

The Merits of Dollar Cost Averaging
Have you ever seen your colleagues, friends or family members on the phone with their...

Singapore Market: Buy the Dip or Dollar-Cost Averaging?
To the uninitiated, investing in the stock market can be deemed exhilarating and challenging. The...