Relationships are built upon mutual agreements that consist of the obligations and responsibilities of each party.
In business and other legally binding agreements, breaches occur when one party fails to meet those obligations.
Fiduciary duty is an important concept that’s misunderstood by many. Understanding what fiduciary duty is and recognizing when it has been breached will help you protect your interests.
What is Fiduciary Duty?
Fiduciary duty is the obligation of one party to act in the best interests of another. This is commonly seen in businesses where the company must protect the interests of shareholders.
The following are other common relationships that involve fiduciary duty:
- Joint ventures
- Insurance providers
- Power of attorney
- Managing partnerships
- Estate executors
Attorneys have a fiduciary duty to clients when providing legal services that protect an individual’s rights in a legal proceeding.
Any relationship that requires a high level of confidence and trust results in a fiduciary duty between both parties.
The “fiduciary” is the individual or organization that holds the fiduciary duty towards the second party, also known as the principal.
The fiduciary must use his or her expertise and discretion when acting on behalf of the principal. In addition, a fiduciary cannot act in any way that goes against the best interests of the client or benefits the fiduciary at the client’s expense.
Included within fiduciary duties are the duty of confidentiality, the duty of good faith, and the duty to provide necessary disclosures.
Identifying Fiduciary Duty Breaches
Breaches of fiduciary duty occur when fiduciaries act in their own best interests. Conflicts of interest are the biggest cause of these breaches. In some cases, fiduciaries may take advantage of relationships for their own personal gains.
Assets of the client may not be used in a way that conflicts with an established agreement. Cases of fraud may exist in a fiduciary breach and require additional legal actions in order to protect the interests of the principal.
Filing a complaint against a fiduciary requires clients to prove that the fiduciary sought personal gains through his or her actions. Plaintiffs must demonstrate the existence of a fiduciary relationship along with evidence that the fiduciary breached this agreement.
Plaintiffs must also prove that the breach resulted in some benefit to the fiduciary or a loss to the plaintiff.
Protection Against Fiduciary Duty Breaches
Understanding fiduciary duty is the first step in protecting yourself from unwanted issues and potential losses. There are actions that lead to a breach such as specific transactions and the disclosure of information.
Fiduciaries must protect the interests of clients and uphold all laws as they relate to an agreement. Any information that may be deemed unreliable must be verified by the fiduciary in order to avoid damages.
Fiduciary duty ensures that individuals and organizations maintain a high level of integrity and honesty towards another party in a relationship.
Understanding fiduciary duty and recognizing when a breach has occurred will protect your best interests and prevent any losses or injury.