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Importance of Fiduciary and Fiduciary Duty

  • cvazquezrosario
  • Feb 11
  • 7 min read

By Carlos Vázquez Rosario, February 11, 2026


What does it mean?

            The terminology of fiduciary refers to a person or organization that has accepted and acquired special trust to act on behalf of someone else, becoming legally obligated to put that other party’s interests ahead of their own in matters such as property, monetary, or power decisions (Fiduciary Duty, n.d.-b). A fiduciary duty is a legal obligation and important responsibility to act solely, or primarily, in another party’s best interests while exercising the powers given by that client, beneficiary, or principal (What Does Fiduciary Duty Mean?, n.d.-a). All this effort with the purpose of avoiding what is called a breach of fiduciary duty, which is damages that could be awarded to the beneficiaries.


(“Fiduciary Duty,” n.d.-a)

A fiduciary relationship may arise in many contexts, including wills, contracts, elections, and trusts. An example is a corporate director who has a requirement to act in good faith, act responsibly and honestly, following the company’s constitution (What Does Fiduciary Duty Mean?, n.d.-b). These duties and remedies draw on a common source of equity where fiduciaries must account for ill-gotten profits even if their entrusts suffered no injury (Cyber.Harvard.Edu/Trusting/Unit5all.Html, n.d.). This is why differences and similarities among these relationships led to laws that regulate fiduciaries by class, and there are features required to establish them.


Beginning with the service relationship, in which fiduciaries provide to the principal services that public policy encourages. Next, the fiduciary has the power entrusted to them over the principal or their property to be effective in their services. In third place, there needs to be a sole purpose of entrustment to enable fiduciaries to serve their principal. Finally, there needs to be a specific monitoring process from the principal to the fiduciary to ensure that the power is being used properly, and that the fiduciary provides high-quality service, as the principal is entrusting expertise they don’t possess (Cyber.Harvard.Edu/Trusting/Unit5all.Html, n.d.). The purpose and effect of the law will be to provide the principal incentives of encouragement to enter into a fiduciary relationship with risks and cost reduction that prevents the excessive use of entrusted power and promises quality in the services (Cyber.Harvard.Edu/Trusting/Unit5all.Html, n.d.).


“A U.S. Department of the Treasury agency, the Office of the Comptroller of the Currency, regulates federal savings associations and their fiduciary activities in the U.S. Fiduciary duties can at times conflict with one another, a problem that often arises with real estate agents and lawyers. Two opposing interests can, at best, be balanced; however, balancing interests is not the same as serving a client's best interest (Fiduciary Definition, n.d.).”


Duties of Agents & Principals

            In agency law, there are specific duties that agents and principals owe each other during the fiduciary relationship to bargain. The duties might be similar in nature; however, they differ based on their roles.


Duties of Agents:

  • Account

    • An agent must keep and render accurate accounts of money and property received or spent on the principal’s behalf, including not competing with the principal in the subject matter of the agency and not secretly profiting from the partnership. Even after the relationship has ceased, the agent’s duty to account to the principal may continue ((5) Agent’s Duties to Principal under Common Law, n.d.).

  • Care and Skill

    • The agent must use reasonable diligence, skill, and care during the performance of entrusted tasks, judged against a reasonable person. Neglecting acts or performing below expected standards may cause liability that results in harm to the principal ((5) Agent’s Duties to Principal under Common Law, n.d.).

  • Inform (or Disclose)

    • Agents must use reasonable efforts to give the principal relevant information and material related to the affairs entrusted, information that the principal is unlikely to know. If this process fails, it could end in a breach between parties ((5) Agent’s Duties to Principal under Common Law, n.d.; 15.3, 2020).

  • Loyalty

    • Acts must be performed primarily for the principal’s benefit in matters connected with the agency and avoid conflicts of interest, including not competing with the principal in the subject matter or secretly profiting from the association ((5) Agent’s Duties to Principal under Common Law, n.d.).

  • Obedience

    • Following the principal’s lawful and reasonable instructions within the scope of the agency is a must, and if the agent departs from those instructions resulting in loss, they become liable to the principal  ((5) Agent’s Duties to Principal under Common Law, n.d.)

  • Confidential Information Protection

    • Any information that relates to the principal must stay confidential and cannot be used or disclosed (15.3, 2020).


Duties of Principals:

  • Compensation

    • Must pay the agent for the work performed (15.3, 2020).

  • Honesty

    • It is essential to maintain transparency with agents regarding the nature and scope of the work they are expected to undertake (15.3, 2020).

  • Indemnification

    • The principal shall indemnify and hold the agent harmless from any legal liability arising from actions taken on behalf of the principal, provided that such actions are executed in accordance with their designated authority (15.3, 2020).

  • Loyalty

    • There can’t be any engagement deals that prevent an agent from performing the agency tasks (15.3, 2020).  

  • Reimbursement

    • A principal is obligated to reimburse the agent for any reasonable expenses incurred on behalf of the principal (15.3, 2020).


If a breach between the fiduciary and the agent occurs, there are different ways to address the situation, starting with alternative dispute resolution (ADR) methods such as arbitration or mediation, and, depending on the severity of the breach, culminating in legal action in court seeking remedies. Some of these legal remedies could be monetary compensation or equitable remedies (Possible Remedies for Breaches of Fiduciary Duty, n.d.)


Example of Fiduciary Relationship in Personal or Business Life

            In my business capacity as a current “Value Stream Manager”, I’m held accountable for the effective and efficient performance of end-to-end value flows across functions, from service to product given. As a people leader, I have a fiduciary duty to the organization that encompasses all of the foregoing duties from the moment I interact with employees or customers. I must always act in good faith and within the scope of the organization's interests. The powers granted to me by the principal are: authority, information/data management, decision-making, formal control, and monetary control, all intended to achieve results in the organization's interest and to support its success, continued growth, and development. My commitment to this role and my aspiration to advance within the executive hierarchy drive my ongoing pursuit of education and skill development. Reason why I aim to enhance my knowledge and gain valuable experience that will distinguish me professionally and provide unique perspectives that may not be readily available.


Experienced Breach of Fiduciary Duty

            In the past, I experienced a situation where I was a Supervisor working for an organization in Alabama, and the Production Manager, who resigned, breached the fiduciary duty. This manager began working for the competitor of the organization for which I worked, and several months after his resignation, he contacted me via text messages, attempting to hire me and to obtain the organization's confidential information, such as drawings and shipping data, that could benefit him in his new role. Actions like these breached his duties of obedience, loyalty, and confidentiality to the organization I was then representing.  


            To avoid future issues, I had to apply my duties of loyalty and care by informing the department of human resources and the plant manager of the incident. These actions were followed by mediation and arbitration; however, the manager was warned that, if the same actions occurred again, legal action would be taken. Fortunately, this situation did not recur during my term with the company. Nevertheless, incidents of this nature highlight the importance of providing clear guidance to employees regarding their responsibilities and appropriate actions to prevent future occurrences.


Conclusion

Fiduciary relationships are essential in both personal and business settings, as they establish trust, accountability, and ethical governance among the involved parties. The fiduciary duty requires individuals to act in good faith, demonstrating loyalty, care, and transparency. This obligation serves as a vital safeguard to protect principals from the potential misuse of power entrusted to others. These relationships can arise in various contexts, such as agency relationships, corporate governance, or managerial roles, and are intended to ensure that those in positions of authority prioritize the interests of those they serve over their own personal interests.


The legal framework governing fiduciary duties, grounded in principles of equity and supported by statutes and common law, provides mechanisms to deter misconduct and remedy breaches. Legal tools such as equitable relief, monetary damages, disgorgement of profits, and alternative dispute resolution aim not only to remedy harm but also to maintain trust in fiduciary relationships. Clearly defined duties for agents and principals help mitigate risk by setting expectations, fostering transparency, and encouraging responsible decision-making.


From a practical standpoint, fiduciary responsibility encompasses not just legal compliance but also the conduct of everyday leadership. Experience shows that breaches of fiduciary duty, particularly with respect to loyalty and confidentiality, can jeopardize organizational integrity and competitive standing. Addressing these breaches through prompt disclosure, the establishment of internal controls, and mediation can reinforce ethical standards and mitigate further risk to the organization. Ultimately, the efficacy of fiduciary law hinges on its capacity to balance trust and accountability, thereby fostering confidence in fiduciary relationships while upholding high standards of professionalism and ethical conduct.

References

(5) Agent’s duties to principal under common law. (n.d.). Retrieved February 11, 2026, from https://www.eaa.org.hk/en-us/Information-Centre/Publications/Agency-Law/-5-Agents-duties-to-principal-under-common-law

Fiduciary definition: Examples and why they are important. (n.d.). Investopedia. Retrieved February 11, 2026, from https://www.investopedia.com/terms/f/fiduciary.asp

Fiduciary Duty. (n.d.-a). Corporate Finance Institute. Retrieved February 11, 2026, from https://corporatefinanceinstitute.com/resources/wealth-management/fiduciary-duty/

Fiduciary duty. (n.d.-b). LII / Legal Information Institute. Retrieved February 10, 2026, from https://www.law.cornell.edu/wex/fiduciary_duty

Possible remedies for breaches of fiduciary duty. (n.d.). SAC Attorneys LLP. Retrieved February 11, 2026, from https://www.sacattorneys.com/articles/possible-remedies-for-breaches-of-fiduciary-duty/

What does fiduciary duty mean? (n.d.-a). The Corporate Governance Institute. Retrieved February 10, 2026, from https://www.thecorporategovernanceinstitute.com/insights/lexicon/what-does-fiduciary-duty-mean/

What does fiduciary duty mean? (n.d.-b). The Corporate Governance Institute. Retrieved February 11, 2026, from https://www.thecorporategovernanceinstitute.com/insights/lexicon/what-does-fiduciary-duty-mean/

 

 




 
 
 

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