A fiduciary (from the Latin word for “trust”) is a person, bank, trust company, investment advisor, or stockbroker who has the power and obligation to act for another beneficiary or individual(s) under certain circumstances that require total trust, good faith, and honesty. The most common type of fiduciary is a trustee of a trust, but fiduciaries can include business advisors, attorneys, guardians, personal representatives, administrators of estates, real estate agents, bankers, stockbrokers, title companies, corporate officers and anyone who undertakes to assist someone who places complete confidence and trust in that person or company. A fiduciary is held to the highest standard and must put the beneficiaries’ interests ahead of its own or any others’ in performing its duties as prescribed by a trust agreement, contract, code of conduct and business ethics policies and procedures. The fiduciary is prohibited from self-dealing or conflicts of interest in which the potential benefit to the fiduciary is in conflict with the best interests of the beneficiaries. A fiduciary relationship is one in which a person or persons place complete confidence in another with regard to either a particular transaction or business affairs in general. The duty of a fiduciary includes both care and loyalty. Collectively, and generally speaking, these duties require a fiduciary to act in the best interest of the beneficiary/client and to provide full and fair disclosure of material facts and conflicts of interest that arise in performing its duties.
Institutions engaged in providing fiduciary services as a trustee, agent, or principal are typically regulated as follows: national banks and trust companies by the Office of the Comptroller of the Currency (OCC), registered investment advisors and broker-dealers by the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA). State regulatory authorities oversee state-chartered banks or trust companies and other financial services companies. Institutions and individuals acting as trustees for the beneficiaries of a trust are bound by state trust and probate statutes.
Changes in fiduciary standards of care may occur as the Dodd-Frank Act directs the SEC to study the need to establish a new uniform federal fiduciary standard of care for brokers and investment advisors who provide personalized investment advice. The act further authorizes the SEC to establish such a standard if it sees fit.