Fiduciaries are people or organizations that act on behalf of others in positions that require honesty, trust and loyalty. They are ethically and legally bound to put their clients’ interests in front of their own.
Their roles and duties often relate to managing a person’s or group’s money or assets. While many types of fiduciaries operate in Kentucky, here are three common fiduciary roles.
Estate plan executors and trustees
An executor – or personal representative – must settle your estate in accordance with your wishes dictated in the last will and testament. He or she must inventory your assets, pay outstanding debts and taxes and distribute what’s left to beneficiaries. If you die without a will, a court will appoint someone for this duty.
Trustees manage assets placed in a living trust and must act according to the directions you outlined in the trust arrangement, just as an executor must follow the instructions stipulated in a will. Trustees can be one or more persons or institutions, such as a trust company or bank.
Financial advisers fall into two categories, fiduciary and non-fiduciary:
- Fiduciary advisers: Must always act in the client’s best interest and cannot collect commissions from the sale of an investment product.
- Non-fiduciary advisers: Their first duty is to the investment company. They are held to a lower set of requirements, called the “suitability standard.”
While fiduciary advisers must always put their clients’ needs first, such as keeping fees low, non-fiduciaries can choose investment vehicles that pay them higher commissions as long as the investment is “suitable” for a client’s needs. All registered financial brokers and broker-dealer firms are regulated by the independent, nongovernmental Financial Industry Regulatory Authority (FINRA).
Board members and corporate directors
Bank directors can be considered trustees for depositors, and board members can be deemed trustees for shareholders in a corporation. They have specific duties, including:
- Duty of care: All financial and personnel decisions that can affect the business must be fully explored.
- Duty to act in good faith: After exploring all alternatives, the board must choose the option that best serves the company and its shareholders.
- Duty of loyalty: Board members and directors cannot put any causes, interests or affiliations ahead of their responsibilities to the company and its investors.
Resolving fiduciary complaints
When fiduciaries violate or are perceived to violate their legal and ethical standards, consulting an experienced lawyer is crucial as these cases often involve complex rules. A knowledgeable attorney will thoroughly examine all correspondence and other relevant documents to support your claim.