Fiduciary Duty

Black’s Law Dictionary defines a fiduciary relationship as “a relationship in which one person is under a duty to act for the benefit of the other.” It further states that “fiduciary relationships— such as…guardian-ward…require the highest duty of care.”

“Highest duty of care” is weighty language in legal matters, and Black’s uses it for good reason. These are unequal, dependent relationships, and the dependence of one party on the other elevates the weight of the duty owed. Thus, trust, candor, and scrupulous good faith are of paramount importance in all dealings.

The primary duties owed are loyalty and care. The duty of loyalty requires that decisions be made strictly for the benefit of the dependent person and not in deference to any other party, including the fiduciary. Indeed, fiduciaries must expressly subordinate their own interests to those of their ward.

Defining “care” requires the establishment of some kind of standard for the activity being undertaken. For example, the standard of care for doctors has been defined as the “average degree of skill, care, and diligence exercised by members of the same profession, practicing in the same or a similar locality in light of the present state of medical and surgical science.”

While it is possible to debate the exact definition of the appropriate standard of care in a particular field, the definition of the standard of care for fiduciaries’ decisions has been under way for over 100 years and is now beyond any meaningful disagreement.

If you are a fiduciary making financial or investment decisions on behalf of another person, you are subject to what’s known as the Prudent Investor Standard.