When individuals hear the word trustee, they often associate the word fiduciary along with it. However, most individuals do not understand what acting in a fiduciary capacity means. A fiduciary trustee is required to act in the highest statue of service, and a fiduciary is legally bound to put their clients best interests above their own. Wealth Advisors Trust Company serves as a fiduciary.
A fiduciary trustee role can be a business, a board member, shareholder, as an executor. Similarly, a doctor is considered as performing in a fiduciary capacity, as well as a trustee. A fiduciary can also be someone with a legal responsibility to manage another money. This is usually known as an investment fiduciary. A registered investment advisor also serves as a fiduciary over their clients. However, broker-dealers are only required to perform in a suitable standard.
When a fiduciary trustee is serving a client, they are linked, meaning their duties form a fiduciary relationship. Unfortunately, this relationship does produce risk. When there is a fiduciary relationship, there are two sides, the entrustors and the entrusted. A part of the fiduciaries duties is to reduce the risk of the entrustor. The first risk that comes with the fiduciary relationship is the entrustment of property and/or power. A trustee is entrusted to manage and protect the property in a trust. With the new legal standards, the temptation to abuse the entrusted property is very low. However, still a risk. The second risk is the possibility of faulty or bad service by the entrusted. The entrusted are responsible for being experts in their field of duty. Their services benefit society and are designed to reduce the entrustors risk. Fiduciary duties can be divided into two primary duties:
- The duty of loyalty
- The duty of care
If a fiduciary is not performing these two duties, and wrongdoing is done to the entrustor, then there will be ramifications performed by a court. These are broken down into legal remedies and equitable remedies.
An injunction, is a legal remedy that provides relief on violations of fiduciary duties. This require the defendant to act in a certain way, or to refrain from acting in a certain way.
Secondly, accounting and restitution are other examples of a legal remedies. These two are very similar, but accounting damages are able to be traced back to the origin of the breach which in turn will unveil to whom the damages are to be paid to. Restitution, can be either a legal remedy or an equitable remedy. This depends on the claim or the nature of what is sought.
Lastly, a constructive trust is another remedy that is imposed by the courts against one who has obtained property by wrongdoing. For example, when property has been falsely obtained, the holder of the legal title is then converted into a trustee, the defendant holds only legal title to certain property, and the plaintiff is entitled to the beneficial ownership.
An equitable remedy provides relief on violations of fiduciary duties. Restitution, as mentioned earlier, is a remedy for contract violations and is usually the amount that was deprived benefit to the promisor. A court can pay restitution when money is paid up front and the individual lost money on the deal. If a controlling shareholder abuses its power by using its control to obtain the corporation's service for a lower rate, equitable remedies can be applied. The court can require the shareholder to pay the difference between the amount it paid for the service and the amount it should have paid for the service.
If a fiduciary is not performing their duties, they can be relieved. The process for a fiduciary to be relieved of his or her duty is broken down into 4 steps. The first step, the fiduciary must give the entrustors notice that their relationship is no longer fiduciary, pertaining to a specific situation. This is a requirement and important because the fiduciaries are legally trusted by the entrustors. Therefore, the entrustors need to be put on notice if their fiduciary is stepping down or unwilling to serve. The second step, the entrustors must be capable of independent Will and Judgment. This means that the entrustors cannot act under undue influence or by mistake of fact. The third step, the entrustors must receive from the fiduciaries the full information about the proposed conflict of interest transaction. This is important ,specifically, when it comes to brokers serving as an agent. When a fiduciary does not disclose a conflict of interest, then they are liable for legal action. It is their duty to disclose all conflicts of interests, so, that the entrustor will be shown a duty of loyalty. The fourth step, the entrustors consent to the transaction should be clear and specific. This means that as a fiduciary all transactions must be explained. Therefore, the fiduciary must demonstrate clarity of every transaction. If a bargain is unfair then this must be disclosed to the client. Any transaction that is not clear or specified to the entrustor is viewed as a breach of duty by the fiduciary. It is also important to understand that a general statement is not sufficient.
A fiduciary serves many purposes, and is responsible for giving you peace of mind. This is why the decision should be a big part of your overall plan.