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What is a Fiduciary? And What are Their Duties?

A fiduciary sounds like something you take into the shower stall with you. It is actually a fairly common legal / financial term, but few people understand its meaning or its implications for the businesses we run. In this article, we’ll take a close look at fiduciaries and their duties, as well as the kinds of fiduciary relationships that are likely to pertain to your business.

Fiduciary definition

What exactly is a fiduciary? A fiduciary is defined as an individual with a legal and ethical responsibility to a client. The most common type of fiduciary relationship is the relationship between a trustee and a beneficiary in legal matters. 

A fiduciary has a responsibility to act in the best interests of their client in whatever matters that they’re engaged. That doesn’t mean that they’re not compensated. Most fiduciaries charge a fee for their services. However, they have a legal obligation to do what’s best for the client they represent, rather than acting in their own interests. 

Examples of fiduciary relationships

If you’re a professional services provider, you already know which fiduciary relationships pertain to your business operations. But there are many different kinds of relationships between fiduciaries and their clients / beneficiaries. 

Some of the most common include:

  • The board members of a company and its shareholders

  • Brokers / financial advisors and investors

  • Executors and legatees

  • Court-appointed guardians and their legal wards

  • Insurance providers and their policyholders

  • Attorneys and their clients

What is fiduciary duty?

Fiduciary duty is a very solemn and highly respected undertaking, one that isn’t entered into lightly. It means that the fiduciary has to act as their client’s eyes and ears, represent them and act in their best interests to pursue beneficial outcomes for the client. 

Fiduciary duty can be undertaken for a single transaction, or it can be an ongoing relationship that lasts for many years. 

Fiduciary relationships and your business

How do you know if you need a fiduciary? Whenever you appoint an attorney, accountant, broker, or any other professional service to act in your business’ interests, you make yourself the beneficiary of a trustee. And the professionals that you engage have a fiduciary duty to your company. 

However, you likely have your own fiduciary duties, especially if you run a publicly traded company. As a company director, you and your fellow board members share a fiduciary duty to your shareholders. 

Your fiduciary duties include:

The duty to act in good faith

While your interests will usually be aligned with those of your shareholders, it is your responsibility to act in the best interests of shareholders when making business decisions. Anything you may do to enrich yourself at the expense of shareholders is considered a conflict of interests, and therefore a breach of trust.

The duty of care

Poorly or hastily made decisions can have a lasting negative impact on shareholders. Therefore, it is your duty to carefully weigh the potential outcomes of the decisions you make, and their impact on the business and its shareholders. 

Duty of loyalty

Sometimes, outside interests or affiliations can potentially draw company directors and board members into conflicts of interest. You have a duty of loyalty to the shareholders and must refrain from any activities or transactions that might place your personal interests above those of your shareholders.

Most of the time, fulfilling your fiduciary duties is completely aligned with running your business to the best of your abilities. The difference lies in placing the needs and best interests of the shareholders at the forefront of your decision-making. 

We can help

If you’re interested in finding out more about fiduciaries, fiduciary duties, and all matters pertaining to your business finances, then get in touch with the financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.

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GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services.