Financial Crisis and the Decline of Fiduciary Law

Abstract

Fiduciary duty requires that fiduciary agents serve their client’s ‘best interests’. In practice this resolves into component duties to avoid unauthorised profit, to eschew unauthorised conflict of duties, to apply prudent and diligent judgement to client business, and to perform primary duties rather than offer remedial damages for efficient or non-harming breach. Classical fiduciary duties support well-functioning markets, but fiduciary law has declined and no longer performs as it ought. In finance, fiduciary duties are often attenuated by implicit or explicit agreements that give intermediaries too much unmonitored power over beneficiaries, allowing incompetent or predatory performance. In addition, judges and legislators have cut the scope of duties and weakened the remedies. To restore fiduciary law to full efficacy, agreements that reduce presumptive fiduciary duties should themselves be subjected to fiduciary standards of loyalty and informed consent. Also, extant fiduciary relationships should be upheld through the classical approach enforcing primary duties.