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The term 'fiduciary' comes from the Latin 'fides', which means faith, and 'fiducia', which means trust. It generally denotes a form of relationship where one person, in a position of relative vulnerability, reposes a high degree of confidence, good faith, reliance and trust in another, whose aid, advice or protection is sought and valued in connection with some matter of not inconsiderable importance. In such a relationship, good conscience requires the party providing support to act at all times for the sole benefit and interest of the party requiring support -- with utmost loyalty, diligence and attention.
In the context of the law, the word 'fiduciary' is used either as a noun or as an adjective. As a noun, 'a fiduciary' is a person possessing 'fiduciary obligations'. These require that a person act with loyalty and good faith in any and all dealings with a particular individual or group. In general, the person to whom this loyalty is owed is known as the 'principal'. The trustees of an express trust are taken to have fiduciary obligations to the objects (or beneficiaries) of the trust (see object trust and trustee). It would appear -- following re Brooke Bond (1963) -- that this requirement applies even to the trustees of a bare trust, who have no real discretion in the trust's execution.
As an adjective, the term 'fiduciary' is employed to distinguish a particularly high level of moral or legal responsibility. A fiduciary duty is, in fact, the highest standard of behaviour at either equity or law. Among other things, it requires: (i) extreme loyalty to whom the duty is owed, (ii) a refusal to place one's personal interests before the object of this duty; and (iii) a commitment not to profit from one's position as a fiduciary, unless the principal so consents.
The fiduciary relationship is perhaps the single most important concept within that portion of the legal system known as equity. When a fiduciary duty is imposed, equity requires a stricter standard of behaviour than the comparable tortious duty of care at common law. Here, not only must the fiduciary avoid any and all conflict between his stated duty and personal interests; he must also steer clear of any inconsistent or conflicting applications of that duty. In short, the fiduciary is required to promote, protect and advance the principal's interests to the very best of his ability and to the greatest possible degree.
Relationships in which a fiduciary duty is commonly recognized by law to exist include the following:
- Trustee and beneficiary.
- Legal guardian and ward.
- Commercial agent and principal.
- Real estate broker and client.
- Financial/investment adviser and client.
- Lawyer and client.
- Executor/administrator and legatee/heir.
- Company director and company shareholder.
- Company officer and company shareholder.
- Company director and the company itself.
- Company officer and the company itself.
- Senior employee and the company itself.
- Company/firm partner and company/firm partner.
- Majority shareholder and minority shareholder.
- Stockbroker and client.
- Retirement plan administrator and retiree/worker.
- Liquidator and company.
- Savings bank and depositor.
- Investment company and investor.
- Receiver/trustee-in-bankruptcy/assignee-in-insolvency and creditor.
- Doctor and patient.
- Parent and child.
- Teacher and student.
- Priest and parishioner seeking guidance.