Sage Brief Guide to Business Ethics by Unknown

Author:Unknown
Language: eng
Format: epub
ISBN: 9781483343600
Publisher: Sage Publisher
Published: 2012-09-14T16:00:00+00:00

Agents and Fiduciaries

In an agency relationship, one party (the agent) is engaged to act on behalf of another (the principal) and to serve that other party’s interest. For example, a homeowner may hire a real estate agent to handle the sale of a house because the real estate has knowledge and skills that the homeowner lacks. In selling the house, the real estate agent is duty bound to act as the homeowner-principal would if that person possessed the agent’s knowledge and skills. In this relationship, the agent has agreed—for a fee, of course—to forgo any personal interest and to act solely in the interest of the homeowner in all matters connected with the sale of the house. Thus, an agent owes a duty of loyalty to a principal in all matters within the scope of the engagement.

A fiduciary is a person who has been entrusted with the care of another’s property or other valuables and who has a responsibility to exercise discretionary judgment in this capacity solely in the interest of the intended beneficiaries. Common examples of fiduciaries are trustees, guardians, executors, and, in business, directors and executives of corporations. Fiduciaries provide a valuable service for individuals who are unable for some reason to exercise control over their own property or assets. Thus, the pension funds of retirees are commonly controlled by trustees, who, like agents, have a duty of loyalty. Fiduciary duty is especially valuable in situations like those of directors and executives of corporations in which it would be difficult, if not impossible, for the intended beneficiaries—the stockholder, in this case—to specify precisely what should be done. As a result, considerable discretion must be allowed a fiduciary.

Although fiduciary relationships are similar to agency relationships, they are also characterized by a stronger duty to act in the interests of others as well as more latitude or discretion in serving the beneficiaries’ interests. Whereas agents are generally engaged by a contract to perform specific tasks, fiduciaries assume positions of trust to exercise judgment about a broader range of matters. The duty of loyalty of a fiduciary is thus more open-ended and comprehensive than that of an agent. In addition, fiduciaries are specifically barred from gaining any material benefit from the relationship without the knowledge and consent of those the fiduciary serves.

Financial service professionals are almost always agents and frequently fiduciaries in their relations with customers and clients. For example, a stockbroker is an agent, but not a fiduciary, when he or she agrees to execute a stock trade for a client. Such a broker is acting merely as an intermediary in a particular transaction. However, a broker who manages a client’s portfolio by offering financial advice and especially a broker who has the authority to trade on the client’s behalf become a fiduciary as well. In contrast, a broker who merely recommends a stock to a client is acting as a salesperson and not as an agent or fiduciary, although the broker still has the moral obligations of any salesperson to avoid deception and offer only suitable products.

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