Breach of Fiduciary Duty
Definition - What does Breach of Fiduciary Duty mean?
A fiduciary duty is a legal obligation for a person, who is placed in a position of authority over another person or group of people, to do the best that they can for them. This onus exists on CEOs and stockbrokers, or anyone that is hired to do a job that has the ability to financially affect another person.
A breach of fiduciary duty is when the person hired or appointed to be in charge does not do what they are supposed to do and the resulting non-action creates a negative effect for the person or people who entrusted the fiduciary in their role. The law requires any fiduciary to act in the best interests of the person or company that appointed the fiduciary. If it is seen that the fiduciary does not undertake the role that is expected of them, and a financial loss occurs, the fiduciary can be sued to reimburse the losses. The law requires the fiduciary to not create any financial benefit for themselves at the cost of the people they represent. This means that full accounting must be completed and up-to-date bookkeeping is on hand.
Justipedia explains Breach of Fiduciary Duty
Duties that a fiduciary must undertake include being loyal to the people who hired them and to act in such a way as to benefit the individual or individuals who placed their trust in the fiduciary. Fiduciary arrangements are not set in law, but certain arrangements that exist that always call a fiduciary arrangement into play include: between an attorney and client or principal and agent, trustee and beneficiary, or will executors and the deceased's beneficiaries.
In essence, a fiduciary relationship is formed whenever a person is hired to represent another in a financially motivated transaction. The fiduciary must do all in their power to act for the benefit of their agents and as such, professionals who work in a field that consistently creates fiduciary relationships between themselves and their clients will take out professional indemnity insurance to cover any case of a fiduciary breach.
If a fiduciary breaches their duties, the law states that they can be held personally responsible for repaying any losses that occurred due to their breach. The law clearly states that a fiduciary can only be held responsible for their own acts and not for the acts of the person who held the fiduciary job prior to them or after them. The fiduciary duties and remedies to breaches can be found under U.S. Code Title 29 Chapter 18.
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