A fiduciary duty is a legal obligation to act in another person's best interests, not your own, because they've trusted you to act for them. Directors, trustees, agents and investment advisers all owe one. In the US it's usually described as a duty of loyalty and a duty of care; in the UK, company directors' duties are written into sections 171 to 177 of the Companies Act 2006.
The word comes up in board meetings, shareholder disputes, trust deeds and adviser agreements, and it's often used loosely. This guide sets out what the law means by it, who owes it, how the UK and US frame it, and what a breach looks like in practice. It explains the rules; for a decision about your own situation, speak to a solicitor or attorney.
What makes someone a fiduciary
Cornell's Legal Information Institute puts it simply: a fiduciary relationship exists whenever one party places trust and confidence in another, and the other accepts responsibility to act on their behalf. That relationship can be explicit, like a written trust, or sometimes implied from how the parties dealt with each other. Once it exists, the fiduciary has to put the other person's interests ahead of personal gain.
Who owes a fiduciary duty
| Fiduciary | Owed to | What it means in practice |
|---|---|---|
| Company director | The company | Decisions made for the company's benefit, not the director's |
| Trustee | The beneficiaries | Managing trust assets for the beneficiaries, never for themselves |
| Agent | The principal | Obedience, loyalty and care when acting for the person who appointed them |
| Attorney or solicitor | The client | Acting in the client's interests and avoiding conflicts |
| Investment adviser (US) | The client | Advice in the client's best interest, with conflicts disclosed |
Note who the director's duty is owed to. Under UK law it's owed to the company itself, not to individual shareholders, staff or customers. That's the detail people miss when they say a director owes them a duty personally.
The UK version: seven general duties for directors
The Companies Act 2006 turned the old common law and equitable rules for directors into seven written duties. Section 170 says they're owed by a director to the company, and must still be read in the same way as the older rules they replaced.
| Section | Duty | The core rule |
|---|---|---|
| s.171 | Act within powers | Follow the company's constitution and use powers only for their intended purpose |
| s.172 | Promote the success of the company | Act in good faith for the members as a whole, considering long-term effects, employees, suppliers, customers, community and reputation |
| s.173 | Exercise independent judgment | Make your own decisions, not someone else's |
| s.174 | Reasonable care, skill and diligence | The standard of a reasonably diligent person in the role, plus your own knowledge and experience |
| s.175 | Avoid conflicts of interest | Avoid situations where your interests conflict, or may conflict, with the company's |
| s.176 | Not accept benefits from third parties | No benefits given because you're a director or for what you do as one |
| s.177 | Declare interest in a proposed transaction | Tell the other directors the nature and extent of any interest |
GOV.UK's plain-English version for small companies boils this down to following the articles of association, keeping records, filing accounts and telling other shareholders if you might personally benefit from a company transaction. It adds a warning worth repeating: you can hire an accountant for the day-to-day work, but you're still legally responsible, and you can be fined, prosecuted or disqualified if you don't meet your duties.
Two details in the Act most people don't know
First, section 178 says the duties in sections 171 to 177 are enforceable like any other fiduciary duty, with one exception: section 174, the duty of care, skill and diligence. In other words, UK law treats the care duty as a duty directors owe, but not as a fiduciary one in the strict sense. That matters for the remedies a court can give.
Second, the duties don't end when you resign. Section 170(2) keeps a former director bound by the conflicts duty for any property, information or opportunity they learned about while in office, and by the third-party benefits duty for things done before they left. Walking out with a client opportunity you spotted as a director is exactly what this catches.
The US version: loyalty and care
In the US, fiduciary duties are mostly set by state law and case law, so the detail varies by state and by relationship. The common thread is the same pair of duties. In agency law, Cornell adds a third: the duty of obedience, alongside loyalty and care, and notes that corporate directors carry these duties too.
Investment advisers are the best-documented example. In its 2019 interpretation, the SEC described an adviser as a fiduciary whose duty is to serve the best interests of its clients, which includes not putting its own interests ahead of its clients'. The duty of care covers suitable advice, best execution of trades and monitoring over the relationship. Under the duty of loyalty, conflicts have to be fully and fairly disclosed so the client can give informed consent. The SEC was also clear that an adviser's federal fiduciary duty can't be waived, although its application can be shaped by agreement.
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What a breach looks like
- A director quietly steering a contract to a company owned by their partner without declaring the interest.
- A trustee using trust funds to cover a personal loan, even if they plan to pay it back.
- A director taking a business opportunity they found through the company and running it on the side.
- An adviser recommending a product because it pays them more, without disclosing the conflict.
- A director accepting a gift from a supplier that's given because of their role.
Remedies depend on the duty and the country, but can include repaying profits made, compensating losses, setting aside the transaction and, for UK directors, disqualification.
How to stay on the right side of it
- Know who you owe the duty to: the company, the beneficiaries, the principal or the client.
- Declare any personal interest in a deal before it's agreed, and minute that you did.
- Get conflicts authorised in the way your company's articles or agreement allow.
- Keep records showing how you reached big decisions and what you considered.
- Take professional advice on decisions outside your skill set, then make the decision yourself.
If you're running a limited company, our guide to the director's loan account shows where personal and company funds most often get tangled, which is where many fiduciary problems start.
My advice
If you're a director, write conflicts down early and often. Nearly every breach story I've read started with something small that nobody declared. If you're choosing someone to manage your savings or investments, ask in writing whether they act as a fiduciary for all of the advice they give you and how they're paid. That one question tells you a lot, and it's why working with a financial planner is only as good as the standard they've agreed to.
Frequently asked questions
What is a fiduciary duty in simple terms?
It's a legal duty to act in someone else's best interests rather than your own, because they've trusted you to act for them. Directors, trustees, agents and investment advisers all owe one.
What are the main fiduciary duties?
In the US they're usually described as the duty of loyalty and the duty of care, with agency law adding a duty of obedience. In the UK, company directors have seven general duties in sections 171 to 177 of the Companies Act 2006.
Who does a UK company director owe duties to?
Section 170 of the Companies Act 2006 says the general duties are owed by a director to the company itself, not to individual shareholders or employees.
Do fiduciary duties end when a director resigns?
Not completely. A former UK director stays bound by the conflicts duty for opportunities and information they learned about as a director, and by the third-party benefits duty for things done before they left.
Can a client waive an investment adviser's fiduciary duty?
No. The SEC's 2019 interpretation says an adviser's federal fiduciary duty can't be waived, although how it applies can be shaped by the agreement between adviser and client.
