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A fiduciary is a person who holds a
legal Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by its boundari ...
or ethical relationship of trust with one or more other
parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview; cropped away black border edge.jpg, 300px, ''Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an ...
(person or group of persons). Typically, a fiduciary prudently takes care of money or other
asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...
s for another person. One party, for example, a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to another party, who, for example, has entrusted funds to the fiduciary for safekeeping or investment. Likewise,
financial adviser A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory b ...
s,
financial planner A financial planner or personal financial planner is a qualified financial advisor. Practicing in full service personal finance Personal finance is the financial management which an individual or a family unit performs to budget, save, and s ...
s, and asset managers, including managers of pension plans, endowments, and other tax-exempt assets, are considered fiduciaries under applicable statutes and laws. In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence,
good faith Good faith ( la, bona fides), in human interactions, is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. While some Latin phrases have lost their literal meaning over centuries, this is not the cas ...
, reliance, and trust in another whose aid, advice, or protection is sought in some matter... In such a relation, good conscience requires the fiduciary to act at all times for the sole benefit and interest of the one who trusts. Fiduciary duties in a financial sense exist to ensure that those who manage other people's money act in their beneficiaries' interests, rather than serving their own interests. The Fiduciary Duty in the 21st Century programme finds that, "far from being a barrier, there are positive duties to integrate environmental, social and governance (ESG) factors in investment processes."PRI, UNEP FI, & The Generation Foundation
Fiduciary Duty in the 21st Century
2018
The programme also concludes that "integrating ESG issues into investment research and processes will enable investors to make better investment decisions and improve investment performance consistent with their fiduciary duties." A fiduciary duty is the highest
standard of care Standard may refer to: Flags * Colours, standards and guidons * Standard (flag) In heraldry Heraldry () is a broad term, encompassing the design, display and study of armorial bearings (known as armory), as well as related disciplines, such ...
in equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the "
principal Principal may refer to: Title or rank * Principal (academia) The principal is the chief executive and the chief academic officer of a university A university ( la, universitas, 'a whole') is an educational institution, institution of higher ...
") such that there must be no conflict of duty between fiduciary and principal, and the fiduciary must not profit from their position as a fiduciary. (unless the principal consents). The nature of fiduciary obligations differs among jurisdictions. In Australia, only proscriptive or negative fiduciary obligations are recognised, whereas in Canada, fiduciaries can come under both proscriptive (negative) and prescriptive (positive) fiduciary obligations.. In
English English usually refers to: * English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, early medieval England, which has eventually become the World language, leading lan ...

English
common law In law, common law (also known as judicial precedent or judge-made law, or case law Case law is the collection of past legal decisions written by courts and similar tribunal A tribunal, generally, is any person or institution with authority ...
, the fiduciary relation is an important concept within a part of the legal system known as
equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the differe ...
. In the United Kingdom, the
Judicature Acts The Judicature Acts are a series of Acts of Parliament Acts of parliament, sometimes referred to as primary legislation In parliamentary systems and presidential systems of government, primary legislation and secondary legislation, the latte ...
merged the
courts of equity A court of equity, equity court or chancery court is a court A court is any person or institution, often as a government institution, with the authority to Adjudication, adjudicate legal disputes between Party (law), parties and carry out the ...
(historically based in England's
Court of Chancery The Court of Chancery was a in that followed a set of loose rules to avoid the slow pace of change and possible harshness (or "inequity") of the . The Chancery had jurisdiction over all matters of equity, including , , the estates of lunatic ...

Court of Chancery
) with the courts of common law, and as a result the concept of fiduciary duty also became applicable in
common law In law, common law (also known as judicial precedent or judge-made law, or case law Case law is the collection of past legal decisions written by courts and similar tribunal A tribunal, generally, is any person or institution with authority ...
courts. When a fiduciary duty is imposed, equity requires a different, stricter standard of behavior than the comparable tortious
duty of care In tort law A tort, in common law jurisdiction, is a civil wrong (other than breach of contract) that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. It can include intenti ...
in common law. The fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, not to be in a situation where their fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from their fiduciary position without knowledge and consent. A fiduciary ideally would not have a
conflict of interest A conflict of interest (COI) is a situation in which a person A person (plural people or persons) is a being that has certain capacities or attributes such as reason Reason is the capacity of consciously applying logic Logic is an i ...
. It has been said that fiduciaries must conduct themselves "at a level higher than that trodden by the crowd"''
Meinhard v Salmon ''Meinhard v. Salmon'', 164 N.E. 545 (N.Y. 1928), is a widely cited case in which the New York Court of Appeals held that partnership, partners in a business owe fiduciary duties to one another where a business opportunity arises during the course ...
'' (1928) 164 NE 545 at 546.
and that " e distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty".


In different jurisdictions

Different jurisdictions regard fiduciary duties in different lights.
Canadian law The legal system of Canada is Legal pluralism, pluralist: its foundations lie in the English common law system (inherited from its period as a colony of the British Empire), the Napoleonic Code, French civil law system (inherited from its New Fra ...
, for example, has developed a more expansive view of fiduciary obligation than
American law The law of the United States comprises many levels of codified and uncodified forms of law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified w ...
, while
Australian law The legal system of Australia has multiple forms. It includes a written Constitution of Australia, constitution, unwritten Constitutional convention (political custom)#Australia, constitutional conventions, statutes, Delegated legislation in the ...
and
British law The United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer t ...
have developed more conservative approaches than either the United States or
Canada Canada is a country in the northern part of North America North America is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, ...

Canada
. In Australia, it has been found that there is no comprehensive list of criteria by which to establish a fiduciary relationship. Courts have so far refused to define the concept of a fiduciary, instead preferring to develop the law on a case-by-case basis and by way of analogy. Fiduciary relationships are of different types and carry different obligations so that a test appropriate to determine whether a fiduciary relationship exists for one purpose might be inappropriate for another: In 2014 the
Law Commission (England and Wales) In England and Wales England and Wales () is a legal jurisdiction covering England and Wales, two of the four countries of the United Kingdom, parts of the United Kingdom. England and Wales forms the constitutional successor to the former Kingdo ...
reviewed the fiduciary duties of investment intermediaries, looking particularly at the duties on pension trustees. They commented that the term "fiduciary" is used in many different ways. The question of who is a fiduciary is a "notoriously intractable" question and this was the first of many questions. In '' SEC v. Chenery Corporation'', Frankfurter J said, The law expressed here follows the general body of elementary fiduciary law found in most common law jurisdictions; for in-depth analysis of particular jurisdictional idiosyncrasies please consult primary authorities within the relevant jurisdiction. This is especially true in the area of Labor and Employment law. In
Canada Canada is a country in the northern part of North America North America is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, ...

Canada
a fiduciary has obligations to the employer even after the employment relationship is terminated, whereas in the United States the employment and fiduciary relationships terminate together.


Fiduciary duties under Delaware corporate law

The corporate law of Delaware is the most influential in the United States, as more than 50% of publicly traded companies in the United States, including 64% of the Fortune 500, have chosen to incorporate in that State. Under Delaware law, officers, directors and other control persons of corporations and other entities owe three primary fiduciary duties, (1) the
duty of care In tort law A tort, in common law jurisdiction, is a civil wrong (other than breach of contract) that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. It can include intenti ...
, (2) the
duty of loyaltyThe duty of loyalty is often called the cardinal principal of fiduciary relationships, but is particularly strict in the law of trusts A trust is a legal relationship in which the legal title to property is entrusted to a person or legal entity ...
and (3) the duty of good faith. The duty of care requires control persons to act on an informed basis after due consideration of all information. The duty includes a requirement that such persons reasonably inform themselves of alternatives. In doing so, they may rely on employees and other advisers so long as they do so with a critical eye and do not unquestionably accept the information and conclusions provided to them. Under normal circumstances, their actions are accorded the protection of the business judgment rule, which presumes that control persons acted properly, provided that they act on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. The duty of loyalty requires control persons to look to the interests of the company and its other owners and not to their personal interests. In general, they cannot use their positions of trust, confidence and inside knowledge to further their own private interests or approve an action that will provide them with a personal benefit (such as continued employment) that does not primarily benefit the company or its other owners. The duty of good faith requires control persons to exercise care and prudence in making business decisions—that is, the care that a reasonably prudent person in a similar position would use under similar circumstances. Control persons fail to act in good faith, even if their actions are not illegal, when they take actions for improper purposes or, in certain circumstances, when their actions have grossly inequitable results. The duty to act in good faith is an obligation not only to make decisions free from self-interest, but also free of any interest that diverts the control persons from acting in the best interest of the company. The duty to act in good faith may be measured by an individual's particular knowledge and expertise. The higher the level of expertise, the more accountable that person will be (''e.g.'', a finance expert may be held to a more exacting standard than others in accepting a third party valuation). At one time, courts seemed to view the duty of good faith as an independent obligation. However, more recently, courts have treated the duty of good faith as a component of the duty of loyalty.


Fiduciary duty in Canadian corporate law

In Canada, directors of corporations owe a fiduciary duty. A debate exists as to the nature and extent of this duty following a controversial landmark judgment from the
Supreme Court of Canada Supreme may refer to: * Supreme (brand), a clothing brand based in New York * Supreme (comics), a comic book superhero * Supreme (cookery), a term used in cookery * Supreme (film), ''Supreme'' (film), a 2016 Telugu film * Supreme (producer), hip-h ...

Supreme Court of Canada
in '' BCE Inc. v. 1976 Debentureholders''. Scholarly literature has defined this as a "tripartite fiduciary duty", composed of (1) an overarching duty to the corporation, which contains two component duties — (2) a duty to protect shareholder interests from harm, and (3) a procedural duty of "fair treatment" for relevant stakeholder interests. This tripartite structure encapsulates the duty of directors to act in the "best interests of the corporation, viewed as a good corporate citizen".


Relationships

The most common circumstance where a fiduciary duty will arise is between a
trustee Trustee (or the holding of a trusteeship) is a legal term {{Short pages monitor Conduct by a fiduciary may be deemed ''constructive fraud'' when it is based on acts, omissions or concealments considered fraudulent and that gives one an advantage against the other because such conduct—though not actually fraudulent, dishonest or deceitful—demands redress for reasons of public policy. Breach of fiduciary duty may occur in insider trading, when an insider or a related party makes trades in a corporation's securities based on material non-public information obtained during the performance of the insider's duties at the corporation. Breach of fiduciary duty by a lawyer with regard to a client, if negligent, may be a form of legal malpractice; if intentional, it may be remedied in equity. Where a principal can establish both a fiduciary duty and a breach of that duty, through violation of the above rules, the court will find that the benefit gained by the fiduciary should be returned to the principal because it would be unconscionable to allow the fiduciary to retain the benefit by employing his strict common law legal rights. This will be the case, unless the fiduciary can show there was full disclosure of the conflict of interest or profit and that the principal fully accepted and freely consented to the fiduciary's course of action. Remedies will differ according to the type of damage or benefit. They are usually distinguished between proprietary remedies, dealing with property, and personal remedies, dealing with pecuniary (monetary) compensation. Where concurrent contractual and fiduciary relationships exist, remedies available to the plaintiff beneficiary is dependent upon the duty of care owed by the defendant and the specific breach of duty allowing for remedy/damages. The courts will clearly distinguish the relationship and determine the nature in which the breach occurred.


Constructive trusts

Where the unconscionable gain by the fiduciary is in an easily identifiable form, such as the recording contract discussed above, the usual remedy will be the already discussed constructive trust. Constructive trusts pop up in many aspects of equity, not just in a remedial sense, but, in this sense, what is meant by a constructive trust is that the court has created and imposed a duty on the fiduciary to hold the money in safekeeping until it can be rightfully transferred to the principal.


Account of profits

An account of profits is another potential remedy. It is usually used where the breach of duty was ongoing or when the gain is hard to identify. The idea of an account of profits is that the fiduciary profited unconscionably by virtue of the fiduciary position, so any profit made should be transferred to the principal. It may sound like a constructive trust at first, but it is not. An account of profits is the appropriate remedy when, for example, a senior employee has taken advantage of his fiduciary position by conducting his own company on the side and has run up quite a lot of profits over a period of time, profits which he wouldn't have been able to make otherwise. The fiduciary in breach may however receive an allowance for effort and ingenuity expended in making the profit.


Compensatory damages

Compensatory damages are also available. Accounts of profits can be hard remedies to establish, therefore, a plaintiff will often seek compensation (damages) instead. Courts of equity initially had no power to award compensatory damages, which traditionally were a remedy at common law, but legislation and case law has changed the situation so compensatory damages may now be awarded for a purely equitable action.


Fiduciary duty and pension governance

Some experts have argued that, in the context of pension governance,
trustee Trustee (or the holding of a trusteeship) is a legal term {{Short pages monitor