Fiduciary Relationship Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Fiduciary Relationship, written in plain English, along with examples of how it is used.

What is Fiduciary Relationship?

n. Confidence placed in someone else regarding a transaction or one’s general affairs or business. The relationship does not need to be formally or legally established but can be based upon personal or moral responsibility due to a fiduciary’s superior knowledge and training as compared to the one whose affairs are being handled.

History and Meaning of Fiduciary Relationship

A fiduciary relationship refers to a special kind of relationship where one person has a legal or ethical obligation to act solely in the best interest of another person or entity. This relationship is based on confidence, trust, and reliance between the two parties. The fiduciary (or trustee) assumes a position of power and discretion over the other person’s affairs, and their actions must always be guided by the principle of loyalty and good faith.

The concept of a fiduciary relationship has its roots in English common law, where it was applied in a range of contexts, including trusts, agency, and partnerships. Over time, the concept has been extended to cover many other areas, including investment management, corporate governance, and professional services like accounting and legal advice.

Examples of Fiduciary Relationship

Here are a few examples of fiduciary relationships in different contexts:

  • A board of directors of a publicly traded company has a fiduciary obligation to act in the best interests of the company’s shareholders.
  • A financial advisor has a fiduciary obligation to act in the best interests of their clients and to disclose any conflicts of interest that may arise.
  • An attorney has a fiduciary obligation to act in the best interest of their client and to maintain client confidentiality.
  • An executor of a will has a fiduciary obligation to distribute the deceased person’s assets according to their wishes and in the best interests of the beneficiaries.

Legal Terms Similar to Fiduciary Relationship

  • Agency: This is a legal relationship where one person (the agent) is authorized to act on behalf of another person (the principal) and owes a duty of loyalty and obedience to the principal.
  • Trustee: A trustee is a person or entity that holds legal title to property or assets for the benefit of another person or entity (the beneficiary). Trustee duties are similar to those of a fiduciary.
  • Duty of Care: This refers to the legal or ethical obligation to exercise a certain standard of care when performing tasks or making decisions for another person or entity.
  • Duty of Loyalty: This is the obligation to prioritize the interests of another person or entity over one’s own interests and to act in good faith at all times.