What is a Fiduciary Duty?

In an earlier article, we discussed who is a fiduciary [link to previous post], that is, who has an absolute duty to act in your best interest. Now we will discuss what is fiduciary duty – what does a fiduciary owe to you?

Texas courts have defined a number of “duties” which a fiduciary must strive to uphold. Failing in these duties can leave the fiduciary vulnerable to a civil lawsuit for breach of fiduciary duty.

Duty of Loyalty

The fiduciary must put the interests of the business or the client or beneficiary over their own, even if that will result in a financial loss to themselves. A few examples of what this might look like:

  • Law firms review their client list to identify potential conflicts of interest among their clients. Any potential conflict must be disclosed and steps are taken to resolve the potential conflict.
  • A trust fund trustee must ensure that decisions they make to invest money in the trust do not involve self-dealing that would benefit the trustee over the beneficiary.
  • A real estate agent (typically) cannot represent both a buyer and a seller in the same transaction as their goals are in conflict, and the agent is in possession of confidential information that could benefit or disadvantage one of the parties.

Duty of Good Faith and Fair Dealing

A fiduciary must act honestly and fairly. This duty requires full disclosure of all facts that could have an impact upon a decision or transaction, including any conflicts of interest. For example, an investment advisor must share any relevant information they have regarding a business or fund in which they are advising their client to invest. 

Duty of Care

A fiduciary must avoid both intentional and negligent harm to the interests of the beneficiary.  

They must act with diligence, demonstrating at least as much care in the fulfillment of their duties as an ordinarily prudent person would under similar circumstances. That is to say, a fiduciary must act with caution, doing their research before acting on a beneficiary’s behalf. A fiduciary must also keep confidential information private.

Duty of Obedience

The duty of obedience means that a fiduciary has a duty to do as they have been instructed, whether that is a specific instruction or duties within the scope of their authority. For example, a corporate officer is authorized to make certain decisions as a result of the authority given to them in a corporate charter. An investment broker has specific instructions to buy or sell stock. If a person who has a fiduciary responsibility to you has failed in one or more of these duties, you may have a legal claim for breach of fiduciary duty. Talk with a McKinney business attorney to understand your rights and options for recovery. Contact The Fell Law Firm or call 972-450-1418.

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