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What Constitutes a Breach of Fiduciary Duty?

Whether you’re an individual who’s hired someone to work on your behalf or a business that’s hired employees, you expect and believe they will act in a way that benefits and protects your interests.

Understanding fiduciary responsibility is an important expectation of someone you work with or hire.

So, what happens when there’s a breach of fiduciary duty? What happens when the trust you placed in another is breached?

It can have dire consequences for you and the person who broke their fiduciary duty.

Read on to learn more about the duties of a fiduciary and learn more about the breach of fiduciary duty.

Fiduciary Duty

When a person has a fiduciary duty to act in a certain way, they are called a fiduciary.

A fiduciary is a person who is legally bound to act in a way that benefits those they serve, being careful not to put their own interests in front of those they serve.

The adjective is defined as given or held in trust.

When you accept a fiduciary duty, you enter into a commitment agreeing that you’ll act in the best interests of the person or beneficiary you’re serving.

Main Duties of a Fiduciary

Now that you understand what a fiduciary is, let’s more closely consider the duty of a fiduciary. When you understand the duty of a fiduciary, you can more easily see how a breach of fiduciary duty could occur.

A fiduciary can be considered to have two duties.

The first part of duty comes from loyalty. This suggests that the fiduciary will act in the best interest of the beneficiary or those who’ve hired them.

The second part of their duty is care. This means the fiduciary has an obligation to take care of their responsibilities on behalf of the beneficiary.

Examples of Fiduciary Duty

To understand fiduciary duty better, let’s take a look at some examples.

One of the most commonly known examples involves a financial professional’s fiduciary responsibility to their clients. The financial advisor is legally obligated to provide advice and guidance that benefits the client’s interests. Similarly, trustees have a fiduciary responsibility when acting for estate beneficiaries.

They would be in a breach if they offered financial opinions to their clients because they knew they would make a larger profit or have more gain if the client acted one way over another.

In the same spirit, a lawyer has a fiduciary responsibility to a client to offer the best and most sound advice. They can’t suggest the client act on their case because they say it gets the lawyer more profit.

A lesser-known example is an employee who has a fiduciary responsibility to their employer or company to not misuse information or resources entrusted to them.

What Is a Breach of Fiduciary Duty?

A breach of fiduciary duty happens when either the loyalty or care you’re obligated to provide is broken.

If you have the responsibility to act in a certain manner for someone else, then you fail to do that, there’s been a breach of fiduciary duty.

When a breach of duty occurs there is:

  • Existence of the duty
  • A breach of the duty
  • Damages resulting from that breach

Once this has occurred, then breach of fiduciary duty penalties are considered, often through legal action.

Breach of Fiduciary Duty Examples

Let’s take a closer look at the examples of a breach of duty, which often happen in the business world.

Some examples include:

  • Acting with the interest of a competitor
  • Using or not accounting for employer money or inventory
  • Profiting as an employee at the expense of the employer
  • Sharing trade secrets
  • Not following employer directions

Sometimes partners of a company will breach a fiduciary duty. They might:

  • Expose the business through neglect or malfeasance
  • Illegal or bad behavior damages the company’s reputation
  • Concealing information

Remember, a breach of fiduciary duty can also happen with a financial professional and agent when they act without the best interest of the client in mind.

Breach of Fiduciary Duty Elements

If you suspect a breach of fiduciary duty, 4 elements are considered. These would be legal considerations if you pursue legal action because of the breach.

Let’s take a closer look at the four elements of breach of fiduciary duty.

Duty

When you consider fiduciary duty, you know there’s the obligation to act in the best interest of the other party.

When considering a breach, you would need to show the duty was present and that a breach occurred.

Legally, it would be considered there was the expectation of duty.

Breach

Once the expectation is shown, then it would be necessary to show that the fiduciary broke that in some way.

The fiduciary acted in a manner that went against your wishes.

Legally, this is the most important element of the 4, that a breach broke the duty of the fiduciary.

Damages

The next step of a breach of fiduciary case involves damages. You need to show that the breach of duty that the fiduciary did cause damages.

Was there a financial loss because of their actions?

If the goal is to recover the loss, then you need to prove the damages occurred.

Causation

Finally, it’s necessary to show how the actions of the fiduciary were what caused those damages.

It can be something else that caused damages. Their actions or advice have to result in damages.

What to Do When a Breach of Fiduciary Duty Happens

A breach of fiduciary duty is a serious offense. When you expect fiduciary behavior from someone, then their breaking it probably means undesirable consequences for you.

If you believe you’ve been a victim of a breach of fiduciary duty, we can help. Contact us today so we can discuss the expectations of duty for the fiduciary in your case.

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