Sometimes, people or businesses may entrust another person or organization with making important decisions on their behalf. Those granted with such responsibility are known as fiduciaries, and they have a legal obligation to act in the best interests of those who have bestowed this responsibility upon them. This legal responsibility is what is known as a fiduciary duty.
Fiduciaries’ actions must be to the benefit of the person on whose behalf they are acting, also known as the principal or beneficiary. According to the Legal Information Institute, the duty of care and duty of loyalty are the two primary legal obligations of fiduciaries. The duty of care requires that fiduciaries become informed using all the reasonably available material before making business-related decisions. The duty of loyalty dictates that fiduciaries must remain free of any economic conflict in performing their professional duties.
According to FindLaw.com, a breach of fiduciary duty may include acting out of their own personal self-interest, neglecting to disclose relevant information or acting in a manner that is not consistent with the principal’s best interests. In legal actions involving a breach of fiduciary duty claim, the beneficiaries must prove that the fiduciary owed them a duty and that the duty owed to them was in some way breached. For example, a financial advisor develops an investment package for a client that involves the purchase of a startup venture. However, the advisor failed to inform the client that the venture belonged to a family member, and the acquisition ended up hurting the client’s portfolio. The client may have grounds for legal action for breach of fiduciary duty.