Fiduciary

A fiduciary relationship exists when one party trusts another to make decisions on their behalf. Common examples include trustees managing a trust, pension fund managers, company directors acting for shareholders and, in many countries, certain financial advisers.

The duty usually has two parts. A duty of loyalty means avoiding conflicts of interest, or clearly disclosing them, and never profiting at the client's expense. A duty of care means acting with the skill, diligence and caution a careful professional would use.

Imagine two advisers recommending an investment fund. One is a fiduciary and must recommend the fund that best suits the client, even if it pays the adviser nothing extra. The other is held to a lower standard and may recommend a suitable fund that happens to pay them a higher commission. Both recommendations may be legal, but only the first must put the client first.

Who counts as a fiduciary, and exactly what the duty requires, differs between countries and types of professional. Asking an adviser directly whether they act as a fiduciary, and how they are paid, is a simple way to understand whose interests come first.