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Duty of Loyalty

CJC3392

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Jan 8, 2015
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Came across this concept recently and I'm pretty mind-blown when I really think about the implications..

"Duty of Loyalty is a term used in corporation law to describe a fiduciaries' "conflicts of interest and requires fiduciaries to put the corporation's interests ahead of their own." "Corporate fiduciaries breach their duty of loyalty when they divert corporate assets, opportunities, or information for personal gain."

What this really means is, say, you're a real estate developer who sits on the board of a real estate company and you come across an opportunity to purchase land. It's your DUTY to bring this information to the corporation first before you can act on it!!!

"The duty of loyalty is breached when the director puts his or her interest in front of that of the corporation."

Sounds to me like socialism. The good of the many is more important than you.
 
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MJ DeMarco

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fiduciaries
Sounds to me like socialism.

It isn't.

Fiduciary means exactly that you are entrusted to put the needs of those who you represent first and foremost.

http://en.wikipedia.org/wiki/Fiduciary

If you're a fiduciary for someone's money, that means you intend to put them in the best investments for THEM, not the best investments that give you the best commissions. Without fiduciary arrangements, the world would be a pretty scary place.

And likewise, things can get muddled when people confuse, for example, BROKER without fiduciary and an Investment Adviser with FIDUCIARY. A broker might likely put you into investments that serve his best interests -- high commissions, etc, -- whereas a fiduciary is EXPECTED to put your needs first. This is why financial gurus suck -- none of them are fiduciaries and instead put their interests first which is why that are back-selling seminars, life insurance, mutual funds, or whatever else pots a nice commission.
 

theag

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Sounds like a standard employment contract to me. Really, really mindblowing.
 
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CJC3392

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Jan 8, 2015
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It isn't.

Fiduciary means exactly that you are entrusted to put the needs of those who you represent first and foremost.

http://en.wikipedia.org/wiki/Fiduciary

If you're a fiduciary for someone's money, that means you intend to put them in the best investments for THEM, not the best investments that give you the best commissions. Without fiduciary arrangements, the world would be a pretty scary place.

And likewise, things can get muddled when people confuse, for example, BROKER without fiduciary and an Investment Adviser with FIDUCIARY. A broker might likely put you into investments that serve his best interests -- high commissions, etc, -- whereas a fiduciary is EXPECTED to put your needs first. This is why financial gurus suck -- none of them are fiduciaries and instead put their interests first which is why that are back-selling seminars, life insurance, mutual funds, or whatever else pots a nice commission.

Thanks for clearing that up.

It seems as if the advisers, who act in their own best interests (selling of securities, commissions, etc.), should be the ones with fiduciary duties.

I was quite surprised though that if you sit on a board you have fiduciary duties.
 
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CJC3392

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Sounds like a standard employment contract to me. Really, really mindblowing.

I was looking at it from the perspective of a board member. I always thought of board members as independent of the entity in respect to their personal investments and decisions, serving more of an advisory-type role.
 

jmusic

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I was looking at it from the perspective of a board member. I always thought of board members as independent of the entity in respect to their personal investments and decisions, serving more of an advisory-type role.

Which is true; I think the reasoning for the fiduciary wording is to prevent similar conflicts of interest like pulling for doing business with a certain company that you would benefit from personally.

Regarding the real estate developer example you gave, you would likely need to come up with a special arrangement dealing with that exact scenario which would be a frequent issue.
 

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