Definition of Fiduciary

by Investing School on February 27, 2010

A fiduciary is a legal relationship between two or more parties. The relationship is a legal but also ethical relationship including a trust between the two parties. The most common parties in this relationship is a fiduciary or trustee and a principal or beneficiary. The fiduciary relationship is one of the utmost trust and confidence. In fact, the word fiduciary comes from the Latin word fides which means faith and the Latin word fiducia which means trust.

For example, if a company, corporate trust or the trust department of a bank holds a fiduciary relation or acts as a fiduciary to another then the fiduciary will act in good faith on behalf of the person or persons to who the fiduciary holds the trust. This relationship is the highest standard of care. It is extremely important that the fiduciary always act in the best interests of the party to whom he or she has been entrusted. Extreme loyalty is expected and personal interests and personal gain is never to be sought unless it expressed consent has been given by the principal.

Corporate directors may be held to a fiduciary title that has similar aspects to that of a trustee. For example, a bank director may become a trustee for the depositors. This position is a fiduciary duty. Sometimes persons in these sensitive positions will also set up a blind trust which places all of his or her own personal financial matters in the hands of a fiduciary in order to protect himself or herself from a conflict of interest.

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