What Is a Fiduciary? Your Questions, Answered

You may have heard the term before, but exactly what is a fiduciary? Click to learn more about these professionals and how they serve the law and the people.

‘Fiduciary’ is a legal term that you might have heard bounced around before. But exactly what is a fiduciary and what do they do?

We can’t ignore the fact that it isn’t the most pleasant sounding word in the English language. However, fiduciaries hold an honorable position that is defined by trust.

They serve a range of functions depending on who they are representing. Read ahead to take a deeper look into the world of fiduciaries.

A Legacy of Faith

To properly define fiduciary, we have to examine its Latin roots and make our way back to the present.

The word is derived from the Latin fiduciarius meaning “held in trust”. In turn, this is derived from fiducia meaning “trust”. The use of the word fiduciary, meaning “inspiring trust”, in the English language goes back to the 1600s.

Fidelity and confidant are other modern English words that share similar etymological roots.

Fiduciary Revival

Before April of 2016, even fewer people would have known what it means. That was until the Department of Labor enacted ‘the fiduciary rule’

The idea was to protect people from the brokers and ‘advisors’ they hired. It ensured that any conflict of interest would be disclosed and the advisor would be legally obligated to act in the interest of the client always.

What Is a Fiduciary in Today’s World?

The law would soon be repealed in 2018 but the word continues to be used to refer to advisors, business partners, and other people ethically (and often legally) obliged to act in good faith.

A trustee is a very similar concept to a judiciary. Definition of their exact role is rather vague. It depends on the goals of whatever entity they are representing.

Here are a few common examples of fiduciary relationships.

Trustees and Beneficiaries

Oftentimes, estate and financial arrangements are handled by a trustee who is bound to do so in a manner the respects the best interests of the beneficiary. 

In this case, the trustee is the fiduciary. An independent fiduciary from a trusted firm can help you manage your finances.

Legal Guardian

You might be fiduciary and not even know it.

A legal guardian, biological or otherwise, is said to have a fiduciary relationship with the minor for which they are responsible.

Is it their duty to protect their wellbeing and see to it that all their needs are met. This includes access to healthcare and education.

Attorneys and Their Clients

This is perhaps the classic example of a legal fiduciary relationship. Your attorney is bound by law, contract, and ethical code to always act in your best interest to the best of their ability.

The Breach of Fiduciary Duty

If a fiduciary fails to honor their responsibility, whether on purpose or neglect, they can be subject to severe consequences.

For example, an attorney could be disbarred or a legal guardian of a minor could lose custody.

Keeping the Faith

To understand what is a fiduciary and how to act like one. You have to understand the concept of acting under good faith and selflessness.

Not everyone can live up to the standard of being a fiduciary. Gaining that level of trust and respect takes years. Here, reputation is everything.

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