Definition: A fiduciary is a person or organization that owes a duty of good faith to another party and is ethically or legally bound to act in best interest of the other party.
What Does Fiduciary Mean?
What is the definition of fiduciary? Simply put, a person serving as a fiduciary to an individual or an organization has the ethical duty to act in the best interest of the third party with all the roles and responsibilities he or she is subjected to.
Fiduciaries are typically entrusted with protecting assets, distributing assets, or simply managing funds. These individuals can have legal standing in the case of an estate executor or simply an ethical standing in the case of friend helping another friend.
The latter example is often seen with individuals or organizations with high visibility or net worth. Celebrities, for example, typically require many people around them to carry out actions and provide services for them. These fiduciaries must be loyal and have the celebrities’ best interest in mind when performing their jobs. We’ve all heard about the stories of band managers and record labels taking advantage of naive musicians. The band management is supposed to be in place to help further the musician’s career—not steal money from them why they aren’t looking.
In an ideal world, the band would simply be able to hire a manager and focus on writing music, but this is often not the case. After the band delegates the management its responsibilities, the band loses control over these activities. As such, it becomes mandatory to ensure that the management acts in the best interest of the band.
Let’s look at another example.
Example
The most commonly used fiduciary is a lawyer. The attorney is paid by the client to advise him on legal matters and tell him the most advantageous course of action in any situation. Since the legal attorney knows the structure, team, future plans, and strategies the client is seeking to pursue, he could be paid off and leak the information to a competitor. This is not only a violation of trust, it’s also a violation of the fiduciary duties the lawyer agreed to uphold.
Before he took the job, the attorney agreed to act in the best interest of the client. He was entrusted with confidential information in order to fulfill his duties of researching the best legal course of action.
Summary Definition
Define Fiduciaries: A fiduciary is a trusted entity that is morally or legally obligated to carry out a task for another party in good faith with their best interests in mind.
