Decoding Fiduciary Duty: A Comprehensive Guide
Are you familiar with the term ‘fiduciary duty’? It’s one of those phrases that may catch your ear at a social gathering, or perhaps during a conversation with a financial advisor. But what does it genuinely signify? Let’s delve into the intricacies of fiduciary duty, its implications, and the reasons it is crucial to comprehend.
Comprehending Fiduciary Duty
The term ‘fiduciary’ may appear complex, but the idea is relatively straightforward. A fiduciary is an individual or institution responsible for acting on behalf of another party. They are bound by both legal and ethical duties to prioritize the interests of the clients they serve over their own. Having a fiduciary duty towards someone implies that your actions should primarily be beneficial to them, not you. In essence, their interest must be your top priority.
Exploring the Concept of Fiduciary Relationship
As defined by the Canadian judiciary, a fiduciary relationship is formed when:
- The fiduciary has the power to exercise their judgment or authority over the beneficiary.
- The fiduciary’s decisions have a direct impact on the beneficiary’s interests.
- The beneficiary is in a position of vulnerability and is dependent, to some extent, on the fiduciary.
This relationship is commonly seen in:
- Attorney and client.
- Doctor and patient.
- Parent and child.
- Corporate director and corporation.
- Financial advisor and investor.
Licensed Insolvency Trustee (LIT) and client
In these relationships, the importance of fiduciary duty becomes apparent. For instance, when you visit your family physician, you trust them to provide the best treatment options suited for your health, not for their personal gain. It’s a given expectation that your attorney, physician, or parents are looking after your best interests. However, this isn’t always the case.
Fiduciary Relationship Case Study: Financial Advisor
In the realm of finance, the understanding of fiduciary duty becomes pivotal, especially while choosing a financial advisor. It’s crucial to distinguish between a regular financial advisor and one bound by fiduciary duty.
Any individual offering financial advice and assisting in managing your finances can be termed a financial advisor. However, they aren’t necessarily obliged to follow fiduciary duty. This means the person managing your finances isn’t required to prioritize your interests above their own. If this sounds absurd, you’re not alone.
That’s not to say that all non-fiduciary financial advisors will act against your best interests, but the possibility cannot be completely ruled out. If your financial advisor isn’t a fiduciary, they may suggest financial products that offer them higher commissions but might not be the best fit for you.
Conversely, a fiduciary financial advisor is legally and ethically bound to prioritize your interests over theirs. Before engaging a financial advisor, ensure you inquire about their fiduciary duty and how they prioritize client interests.
Fiduciary Relationship Case Study: Licensed Insolvency Trustee
Unlike many financial advisors, a Licensed Insolvency Trustee (LIT) is bound by fiduciary duty as per the Bankruptcy and Insolvency Act, requiring them to act “honestly and in good faith.”
An LIT adheres to a Code of Ethics outlining service standards. For instance, standard 34 in the Code of Ethics for Trustees states, “Every trustee shall maintain the high standards of ethics that are central to the maintenance of public trust and confidence in the administration of the Act.”
This Code of Ethics lays down specific rules that every LIT must follow. Unlike financial advisors, there’s no choice between fiduciary and non-fiduciary. All LITs adhere to the same code.
Why is Fiduciary Duty Relevant?
Fiduciary duty is particularly significant in financial advisor relationships as it directly impacts your finances. If your advisor promotes financial products to earn higher commissions at your expense, your financial growth could be compromised.
In the context of an LIT, fiduciary duty is crucial as they handle high-stake financial situations like Personal Bankruptcies and Consumer Proposals. They assist individuals in vulnerable financial and personal situations. The promise of trust and good faith is essential, especially when disclosing intimate financial details and entrusting your financial future.
An LIT is committed to supporting you and finding the best solution to your debt woes. You can rest assured that an LIT won’t prioritize their interests for monetary gain, as LIT fees are regulated by the federal government.
Does a Licensed Insolvency Trustee Have a Fiduciary Obligation?
Indeed, a Licensed Insolvency Trustee has a fiduciary obligation. If you are struggling financially and considering filing for Personal Bankruptcy or a Consumer Proposal, it is advisable to seek assistance from professionals bound by fiduciary duty. You should be able to trust the person advising you when you need help the most.
Connect with a Licensed Insolvency Trustee
Should you have any queries about the fiduciary relationship between an LIT and a client, feel free to reach out. At Bankruptcy Canada, you can schedule a free consultation with an LIT to discuss your financial situation and learn about available financial supports. You don’t have to tackle your debt alone.
