What is a fiduciary in finance?

A fiduciary in finance is an organization or individual that acts on behalf of another party, typically in a trust-based relationship. This means that the fiduciary has a legal and ethical obligation to prioritize the interests of the person or entity they represent. In this context, the fiduciary must manage assets or make decisions in a manner that is beneficial to their client, often assuming a higher standard of care compared to other types of financial relationships.

The key aspect of a fiduciary relationship is the trust placed in the fiduciary by the client. This contrasts with relationships where the advisor may not have an obligation to act in the client's best interest. Fiduciaries can include financial advisors, trustees, and estate executors, among others, who are mandated to act with integrity, loyalty, and care.

Understanding the fiduciary duty is critical in finance, as it sets a standard for accountability and integrity that protects clients from potential conflicts of interest and ensures that their financial well-being is the primary focus.