Fiduciaries are legally and ethically obligated to put their client’s best interests ahead of their own.  In many governance or advisory relationships, the determination of fiduciary status is central to whether the individual or entity has legally defined responsibilities and corresponding liability for decisions that are made or actions taken.

Some common examples include the fiduciary relationship between a trustee and beneficiary, where the trustee is obligated to act on the beneficiary’s behalf according to case law and the terms of the trust itself. Certain investment advisors  are bound by a fiduciary relationship to their clients and must therefore select and use investments that are in the client’s best interests, not just “suitable” for the client. In contrast, broker-dealers and some other advisors may not necessarily be fiduciaries and are therefore freer to offer investments that might benefit the selling advisor more than the client.

In family enterprise governance, a board of directors might be only advisory in nature (therefore called an advisory board) without the full legal status of fiduciary responsibility. A fiduciary board has more power and responsibility for its functioning and decisions, including being liable for making decisions that damage the business it oversees.

Registered investment advisors (RIAs), attorneys, executors, investment corporations, accountants, and insurance companies all may have fiduciary duties to their clients.  Whether a person has fiduciary responsibility is designated in the agreement or contract with the client.