Fiduciary Risk

AAA

DEFINITION of 'Fiduciary Risk'

A type of risk that accounts for the possibility of a trustee/agent who is not optimally performing in the beneficiary's best interests. This does not necessarily mean that the trustee is using the beneficiary's resources for his/her own benefit; this could be the risk that the trustee is not achieving the best value for the beneficiary.

INVESTOPEDIA EXPLAINS 'Fiduciary Risk'

For example, a situation where a fund manager (agent) is making more trades than necessary for a client's portfolio is a source of fiduciary risk, because the fund manager is slowly eroding the client's gains by incuring higher transaction costs than are needed. This would be a situation where the agent is clearly not optimally creating value for his or her client

RELATED TERMS
  1. Fiduciary Fraud

    Illegal practices committed by financial institutions and financial ...
  2. Principal-Agent Relationship

    An arrangement in which one entity legally appoints another to ...
  3. Employee Trust

    A trust fund established by an employer on behalf of its employees ...
  4. Agency Costs

    A type of internal cost that arises from, or must be paid to, ...
  5. Agent

    1. An individual or firm that places securities transactions ...
  6. For Sale By Owner - FSBO

    A method of selling property without the use of an agent or broker. ...
RELATED FAQS
  1. Upon my death, will the beneficiaries of my IRA be compelled to take the entire amount ...

    It depends. If the beneficiary of your IRA is your spouse, he or she will be eligible to transfer the amount to his or her ... Read Full Answer >>
  2. My uncle died recently. He designated my mother and father as his beneficiaries in ...

    It depends. If the retirement plan is a qualified plan, then the plan administrator would refer to the plan document to ... Read Full Answer >>
  3. What should you take into consideration when choosing a portfolio management service?

    Hiring a portfolio management service or a portfolio manager should be a logical decision based on topics of consideration ... Read Full Answer >>
  4. What are some popular mutual funds that give exposure to the drugs sector?

    The pharmaceutical industry has experienced outstanding growth in the 10 years leading up to 2015, consistently outperforming ... Read Full Answer >>
  5. What techniques are most useful for hedging exposure to the banking sector?

    The banking sector moves in the same direction as the broader market, but its volatility is much lower. The sector's stability ... Read Full Answer >>
  6. What is the variance/covariance matrix or parametric method in Value at Risk (VaR)?

    The parametric method, also known as the variance-covariance method, is a risk management technique for calculating the value ... Read Full Answer >>
Related Articles
  1. Professionals

    Fiduciary Designations For Financial Advisors

    Attaining the AIF or AIFA could help both you and your clients enjoy a comfortable retirement.
  2. Active Trading

    Peter Lynch On Playing The Market

    Everyone can appreciate great advice from a professional. Read on to benefit from the vast experience of Peter Lynch.
  3. Options & Futures

    An Estate Planning Must: Update Your Beneficiaries

    Life changes make it time to rewrite your plan's designations.
  4. Options & Futures

    10 Tips For Choosing An Online Broker

    This important investment decision happens before you pick your first stock. Find out how to get it right.
  5. Fundamental Analysis

    Explaining Expected Return

    The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome.
  6. Mutual Funds & ETFs

    U.S. Investors Are Seeking Opportunities Overseas

    A latest analysis leads to believe that many investors are applying a spring cleaning approach to their portfolios, rebalancing as the 1st quarter ended.
  7. Investing

    Three Portfolio Moves To Consider Now

    What portfolio moves should you consider making as the 2nd quarter kicks off? Before we focus on the future, let’s first reflect on the 1st Q surprises.
  8. Investing Basics

    Manage Investments And Modern Portfolio Theory

    Modern Portfolio Theory suggests a static allocation which could be detrimental in declining markets, making it necessary for continuous risk assessment. Downside risk protection may not be the ...
  9. Mutual Funds & ETFs

    Is Amazon a Prime Pick for Your Portfolio?

    Eyeing Amazon? Thanks to innovation and diversification, it has high odds of being a long-term winner. Here's why.
  10. Mutual Funds & ETFs

    Should You 'Like' Facebook in Your Portfolio?

    When it comes to your portfolio should you like Facebook?

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center