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Vail Daily column: Duty before self

Country before self.

Even in this supercharged season of angry politics, it’s a concept we all understand.

It’s sort of like that.



Being a fiduciary is the expression of the highest standard of care in the service of another. If I am your fiduciary — or you are mine — then the duty the one of us may owe to the other is greater than that which would serve ourselves.

If faced with two identical products but with different fees, an adviser under the fiduciary standard would be compelled to recommend the one with the least cost to the client, even if it meant fewer dollars in the company’s coffers — and his or her own pocket.

From the Latin “fiducia,” meaning “trust,” a fiduciary is a person (or a business such as a bank) who has the power and obligation to act in the interests of another under circumstances that require total trust, good faith and honesty.



THEY POSSES KNOWLEDGE

A common instance of a fiduciary is a trustee of a trust. Other fiduciaries can include business advisers, attorneys, guardians, administrators of estates, real estate agents, bankers, stockbrokers, title companies or anyone who undertakes to assist someone who places confidence and trust in that person or company.

Quite often, the fiduciary has greater knowledge or expertise about the matters being handled. Say, for example, you place your trust with a financial adviser to handle your investments. You dump your hard-earned money on him and say, “Do what’s best for me.” Their obligation, then, is to simply do what’s best for you.



Say there is a risky investment fund where your financial adviser could place your funds that would earn him a tidy commission. But that fund is risky and at your stage in life, risk is the last thing you want or need and you have made that clear to them. There is another fund which is slow and steady; just the thing you need as you’re heading for a fulfilled retirement. But, to your financial adviser’s misfortune, the commission paid on that fund is a paltry shadow of the Risky Business Fund.

But then there’s this: financial advisers are a fiduciary, who have accepted your trust and your money with the understanding that they will do what’s best for you, not them, by law.

HELD TO A HIGH STANDARD

A fiduciary is held to a standard of conduct and trust above that of a stranger or of a casual business person. While a fiduciary and the beneficiary may join together in a business venture or a purchase of property, the best interest of the beneficiary must be primary, and absolute candor is required of the fiduciary.

If I passed over it without explanation, the beneficiary of a fiduciary relationship is called the … beneficiary. See, this law stuff’s not so hard.

Quite often where the term fiduciary arises is in the financial arena. In an extreme example, one can look to the Bernie Madoff case.

FINANCIAL INSTITUTION REFORM

In the wake of the financial collapse that brought down a handful of revered financial institutions, there followed significant legislative reform.

The two standards that advisers and financial planners are held to — the suitability standard and the fiduciary standard — afford the investor some protections.

The first affords advisers the most wiggle room; it requires, simply, that investments must fit clients’ investing objectives, time horizon and experience.

The second, though, is firmer. It charges advisers with putting their clients’ best interests ahead of their own. If faced with two identical products but with different fees, an adviser under the fiduciary standard would be compelled to recommend the one with the least cost to the client, even if it meant fewer dollars in the company’s coffers — and his or her own pocket.

One last thing: Breach of a fiduciary obligation can be actionable before the courts. Let’s say, I am named trustee of a trust, and I dip into the trust cookie jar for the sake of my own enrichment. Oops, I just bought myself a lawsuit at the least, perhaps criminal charges and — with apologies to my friend Richard Carnes —perhaps a few laps around the Purgatory treadmill.

Act for others. Duty before self.

That’s the stuff that fiduciaries are made of.

Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices of counsel in the Vail Valley with the law firm of Stevens, Littman, Biddison, Tharp & Weinberg LLC. His practice areas include business and commercial transactions, real estate and development, family law, custody, divorce and civil litigation. Robbins may be reached at 970-926-4461 and Robbins@SLBLaw.com.


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