Fiduciary's
duty entails
client trust,
confidence

Terms from the legal vocabulary regularly make their way into everyday speech — plaintiff, defendant, tort, contract, deposition, arbitration, negligence, ambulance chaser, etc. In some cases, non-lawyers have a reasonably good understanding of what these terms mean.

In other cases, they do not. One legal term commonly used in everyday speech that non-lawyers (and even many lawyers) may not fully understand is “fiduciary.” A fiduciary is someone in a position of trust and confidence with regard to the affairs of someone else.

By statute, personal representatives of an estate are fiduciaries, as are trustees, guardians and conservators. Officers and directors of a corporation are fiduciaries as to the corporation’s stockholders. Partners of a partnership are fiduciaries as to the partnership and each of its other partners. Lawyers are fiduciaries as to their clients.

Agents are fiduciaries as to their principals. This includes agents named in a power of attorney and employees, since employees are agents of their employer.
When you leave statutes behind and dig around in the common law — that is, law made by courts deciding cases — you find many situations where a person placed in a position of trust is found to be a fiduciary.

By way of example, this can sweep into the fiduciary fold a caregiver who has responsibility for financial decisions of an elderly client. And stock brokers and bankers can become fiduciaries if they go beyond normal administrative functions and nurture a relationship that causes a customer to relax vigilance and place an inordinate amount of trust in the broker or banker.

On the other hand, a person who sells you tires, even though you place total trust in this person in a circumstance where you don’t have a clue what you are doing, will not be a fiduciary.

Thus, the line that separates fiduciaries from others who impact your life in significant ways can get fuzzy.

So why is it important whether or not someone is a fiduciary? Because the law expects more of fiduciaries than others who have legal duties to another person.

Fiduciaries owe strict duties of good faith, candor, fairness, honesty and loyalty to those they represent. If they are in charge of money, they must make investment decisions that are thoughtful, cautious and prudent.

Fiduciaries who breach their duties are subject to legal liability for the consequences of their breach. This will include damages suffered by a person to whom a fiduciary duty is owed — for example, losses in a trust where there was not adequate diversification. Also, a fiduciary breaching duties will forfeit compensation during the period of breach. And, in some cases, a fiduciary will be liable to an injured party for attorney fees. The only thing worse than having to pay your own lawyer is having to pay the lawyer of someone who sued you.

In sum, if you are injured by the actions of a fiduciary, you may have special legal rights of recovery. If you are acting as a fiduciary, don’t get sloppy with your duties or those same legal rights can be asserted against you.
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Jim Flynn is a private attorney at Flynn Wright & Fredman LLC in Colorado Springs. The firm
primarily represents clients in the
real estate, financial services and
small-business sectors. Reach him at jtflynn@fwflegal.com.