What is fiduciary duty?

What is fiduciary duty?

by | Jul 2, 2020 | Firm News

Investing is difficult on its own, even without having to worry about unscrupulous persons acting on your behalf. It is important to understand the rights and obligations you have as an investor working with third parties.

One of the key elements to understand is fiduciary duty. According to FindLaw, fiduciary duty is when one party has a legal obligation to act in the best interest of a separate party.

What is a breach of fiduciary duty? 

At its most basic level, a breach of fiduciary duty is when one party (in this case, an investment professional), who is in an agreed legal relationship with another party (the investor), fails to act in the best interest of that party. Other examples of relationships that involve fiduciary duty include attorneys and clients, trustees and beneficiaries and principals and agents.

This agreement is somewhat similar in nature to a physician’s duty of care to a patient. In the event that the guiding party does not act in the best interests of the secondary party, then grounds exist for a civil lawsuit.

What are remedies for a breach of fiduciary duty? 

If a plaintiff prevails in a breach of fiduciary duty lawsuit, usually the plaintiff will recover monetary damages, at minimum. However, a plaintiff may also receive punitive damages from the defendant if the court finds that the defendant was acting out of fraud or potential malice.

However, calculating punitive damages in a fiduciary duty case can be challenging. It can also be challenging to prove that poor decision-making on the part of the defendant was malice and not just well-intentioned, albeit poor, judgment.