The Duty of Loyalty in Trust Law

Abstract

The duty of loyalty has been a bedrock principle of trust law for hundreds of years. More recently, it has been applied outside the traditional trust sphere to a widening array of fiduciary relationships in the wealth management business. Questions concerning the nature and scope of the duty have arisen with increasing frequency and are affecting how wealth management services are delivered. New and emerging iterations of the duty of loyalty have not departed from the fundamental trust law principle that the interests of the fiduciary must be subordinated to those of the client. Nevertheless, subtle distinctions in the way the duty is interpreted may result in significant differences in the way it is applied in specific contexts. To assist in efforts to clarify the nature and scope of the duty of loyalty, this paper examines the duty in its strictest form as it currently exists in trust law as a baseline for analysis. As modern revisions of trust law indicate, the duty of loyalty is not absolute and may accommodate a wide range of fiduciary relationships and activities necessary for trustees and other wealth managers to serve their customers effectively and efficiently. The trust law duty of loyalty thus remains an important guidepost for the application of fiduciary standards in the broader wealth management business.