Fiduciaries are people that have special responsibility over a person or entity’s finances, either by agreement of that person or entity, or by court order. Because of this, a Fiduciary possesses many duties and responsibilities to the protected party, also known as the Principal, that must be kept in mind.
The first duty is the duty of loyalty. A Fiduciary must put the needs and interests of the protected party before the Fiduciary’s own interests. This also means that a Fiduciary must put all of their reasonable efforts towards advancing their Principal’s interests. This prohibits things like self-dealing, theft, embezzlement, misappropriation, and similar wrongs.
The second duty is the duty of care. The duty of care means that the Fiduciary must act as a reasonably prudent person would in a similar situation. In real world situations, this means the Fiduciary must act reasonably. A Fiduciary cannot make badly-informed decisions, or make decisions based on information that a reasonable person would reject. For example, a Fiduciary that knowingly invested a Principal’s money into bad investments and ended up losing the entire investment could be liable for breaching the duty of care.
A Fiduciary can be held personally liable for damages that may result from his/her breach of his/her duties of loyalty and care. As a result, it is wise for a person or entity that acts as a Fiduciary to seek legal counsel when acting on the behalf of a Principal.