(February 3, 2012): Many folks or businesses agree to manage another person’s interests, money or business. When this happens there is a fiduciary duty that attaches to the person or entity managing the other person’s interests, money or business matters.
The acceptance of a fiduciary duty can occur, for example, by being a General Partner in a Limited Liability Partnership, a Finance Adviser to an individual, or by managing the funds, property or affairs of another.
When you handle the money or manage the assets of another person or entity, you assume a higher duty to that person or entity than is normal - this duty is called a “fiduciary duty”. The basic definition of “fiduciary duty” is to put the interests of others you are representing or assisting above your own interests. For example, you cannot steal or double-dip from the funds you are managing, grossly mismanage another’s assets or fail to keep adequate records.
However, many times the person or entity that takes on the management of another’s money, business or assets does not understand this fiduciary duty, becomes complacent or just doesn’t care about his duties. Thus, as Henry Silverman, former CEO of Cendant Corporation, famously said when uncovering accounting improprieties of a business recently acquired by Cendant: “There is a fiduciary duty here. It's really inconceivable to us.”
What he was saying is that it was inconceivable that proper care was not used to manage the funds or affairs of others, even in spite of the fiduciary duty owed. The failure to exercise proper care in handling the money and affairs of others can not only place you or your business in great danger of incurring civil liability, but also opens a serious threat of possible criminal charges against you.
So, if you are about to manage, oversee, or care for the money or assets of another, be sure to call your attorney, explain what you want to do, determine if there is a fiduciary duty and what type of risk management control you need to have to make sure you do not violate that fiduciary duty. As always, an ounce of prevention is worth a pound of cure.