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by Liam Doyle

The finest fiduciary duty facts – why they are important and how they help you

Fiduciary applies to any situation in which one person justifiably places confidence and trust in someone else and seeks that person’s help or advice in some matter… Fiduciary can also be used as a noun for the person who acts in a fiduciary capacity, and fiduciarily or fiducially can be called upon if you are in need of an adverb. The words are all faithful to their origin: Latin fidere, which means “to trust.” – Mirriam Webster


“A fiduciary duty is a commitment to act in the best interests of another person or entity. Broadly speaking, a fiduciary duty is a duty of loyalty and a duty of care. That is, the fiduciary must act only in the best interests of a client or beneficiary. And, the fiduciary must act diligently in those interests.” – Investopedia


“Although the fiduciary duty has escaped a precise definition, a fiduciary duty fiduciary duty is said to arise ‘where, as a result of one person’s relationship to another, the former is bound to exercise rights and powers in good faith and for the benefit of the latter.’” – Tim Hammond, cf. J. Beherendt


Sorry… What are fiduciary duties?


Cutting through the technical vocabulary above, the word “fiduciary” traces its origins to the 1640s. It has the meaning of “holding something in trust”.


So, a fiduciary is someone who has been entrusted with the task of being responsible for the wellbeing of another. Parents and legal guardians have a fiduciary responsibility for their children’s general wellbeing, for example.  


When it comes to services offered by individuals or organisations to their clients, they have a fiduciary duty to put the interests of the clients ahead of their own needs.  These duties are recognised as being both ethical and legal, with legislation in many countries being in place to enforce them, and to prevent companies and individuals which offer services from taking advantage of their customers or clients. Lawyers have the duty to provide the best legal advice to their clients and should not advise their clients on the basis of what is easiest or most convenient for the legal firm. It is the needs of the client that should dictate a lawyer’s service. Doctors have such a duty to their patients, and estate agents to their customers.


Many laws also attempt to enforce minimum best service practises and many industries desire to adhere to these standards in order to have industry standards. The best companies seek to exceed these minimum requirements in order to give their clients great service.


Fiduciary duties very often relate to financial services, where bankers, board members, money managers and financial advisors, to name a few, have the task of managing their clients’ assets. Here the fiduciary duties relate not just to the management of the assets, but also the quality of the advice given to the clients regarding what they should do with their resources regarding investments. A financial advisor cannot simply punt the products that give them the best commissions and fees, for example; they must advise their clients based on each client’s particular needs.


Very Briefly: Fiduciary duties through time


Societies have needed fiduciary duties in order to function throughout history, from East to West, from the most ancient times to the present. 


Already almost 4000 years ago, in one of the earliest and most complete ancient legal codes in human history, the Code of Hammurabi, the use of money for investments on another’s behalf is discussed. The Bible contains many references to the duties that people owe to each other, and contains the principles that sellers owe to their clients (for example, not using false weights in business transactions).


The ancient Chinese philosopher Confucius wrote about being loyal to the interests of others, and Plato, from ancient Greece, focused much on the duties of leaders to their citizens in his Republic.


The Romans codified fiduciary obligations in their laws and the Roman statesman Cicero stated that if someone would be careless in their execution of that which was entrusted to them, this would undermine the entire basis of the Roman social system.   


The English courts of Equity, which began to develop in the 15th century, were known to have granted relief in numerous cases where a person abused trust. In time, concrete rules of fiduciary relationships emerged. In American law, the 1928 case of Meinhard v. Salmon has become one of the most quoted rulings when it comes to fiduciary duties. The court held that the managing partner was obligated to the investment partner, to inform him of opportunities arising during their partnership.


This very cursory overview shows the intrinsic role that the concept of fiduciary duty has played in human history, giving rise to the development of concrete laws to govern these relationships.


Fiduciary Duties of companies in South Africa


In South Africa, it is the Companies’ Act 71 of 2008 that guides most of the interpretation of fiduciary duty concerning businesses in the country. It was signed into law in 2009, and became operative on the 1st May 2011.


The act was also in line with international developments, seeing the need for directors to take greater responsibility for the performance of the companies that they manage, increasing their liability so as to counter negligent and reckless behaviour undertaken on behalf of the organisations for which they are  responsible.


Fiduciary duties and investments in South Africa


South Africa has much legislation in place relating to its financial sector. First and foremost, when it comes to financial service providers (FSPs), is the Financial Advisory and Intermediary Act of 2002 (FAIS). FSPs are firms offering financial advice and acting as an intermediary when it comes to investing on behalf of their clients.


In section 15, FAIS clearly states that ““A provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.”


This is as good a definition of what a fiduciary is as could ever be found, and it is codified in the legislation that legally governs FSPs.


One other example will show that the bar for fiduciary duties and investments is set very high in this country. South Africa’s pension fund act is world-class and it shows that trustees have the obligation to invest for long-term sustainability and resilience, and not simply to maximise returns for the FSP. 


Morebo’s Vigorous adherence to Fiduciary duties


All of this is to show that the fiduciary duties owed to clients are acknowledged legally and not just theoretically or ethically, to ensure that trustees are doing their best to secure the best returns for those who have entrusted their monies to an FSP.


Morebo is a registered FSP. Meeting the individual needs of our clients has always been our highest priority. We take our fiduciary duties to heart, and we aim to meet and far exceed the minimum legal requirements. Contact us today for tailored investment advice.


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Morebo Financial Solutions (Pty) Ltd, an affiliate of Liberty, the Liberty Group Ltd is an authorised Financial Services Provider in terms of the FAIS Act. (No. 2409)
Morebo Wealth (Pty) Ltd, an affiliate of Liberty, the Liberty Group Ltd is an authorised Financial Services Provider in terms of the FAIS Act (no. 2409)
Morebo Brokerage (Pty) Ltd is an Authorised Financial Services Provider in terms of the FAIS Act (no. 48360)

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