What Is Fiduciary Negligence?

Fiduciary negligence is a type of professional malpractice in which a person fails to honor their fiduciary obligations and responsibilities.

Understanding Fiduciary Negligence

Fiduciary negligence occurs when a fiduciary fails to act on breaches of duty, specifically when their actions could have prevented the infractions or minimized the negative repercussions. A fiduciary is a person or entity that is charged with the responsibility of overseeing the financial accounts or assets of another party. Board members can act as a fiduciary on behalf of shareholders. Attorneys and trustees are examples of other professionals that often act in a fiduciary role. The fiduciary is required to abide by a variety of ethical and legal rules and guidelines.

Fiduciary negligence generally comes in the form of a passive behavior, in that it is a failure to take action or take any steps to stop or address the actions of others. This is why this type of failure is called negligence, as opposed to acts of fraud or deception, where the fiduciary initiates or actively engages in behavior that breaches their ethical duty or code of conduct.

Fiduciary Negligence Example and Solutions

A party in a fiduciary role can be guilty of negligence even if they did not benefit from the result of their inaction. Suppose that a company's shareholders entrust their funds with the firm's management. If the company's employees are embezzling money or expensing funds on lavish dinners and gifts and the chief financial officer fails to check the financial accounts, allowing such infractions to go unnoticed, that officer would be considered negligent and held accountable even if they did not personally benefit from these actions.

Parties that commit actions that could be considered negligence may be subject to a variety of penalties or other consequences. These penalties may be imposed by a relevant entity or governing body that has jurisdiction over that party. In some cases, the offending party may even be potentially subject to criminal penalties. More commonly, the behavior would be considered a civil matter. A party that feels they have been negatively impacted by fiduciary negligence can file a legal complaint naming the fiduciary as the defendant.

As with any type of civil lawsuit, the plaintiff would have to establish a case proving the alleged act(s) of negligence and providing evidence to back up their claim. The potential damages that could be awarded if the plaintiff is successful would depend on a variety of factors, including the amount of losses the plaintiff may have suffered as a result of the negligence on the part of the fiduciary.