Today at the regular meeting of the Oregon Family Firm Institute Study Group here at Ater Wynne, the discussion focused on the fiduciary duties that the professional owes the client and the standard of care imposed on the professional during the engagement. We also discussed the difference between the two. It was helpful to the discussion to have the definitions in front of us which I share here:
"Standard of care" is the degree of care or competence that one is expected to exercise in a particular circumstance or role. "Fiduciary duty" applies to a special relationship in which one acts for someone else's benefit while subordinating one's own personal interest to that of the other person. It is the highest standard of duty implied by law. The elements are trust, confidentiality of information, good faith and candor.
Three members of the study group discussed their perspective. First to speak was the certified public accountant. He reported that the fiduciary duty of a certified public accountant involves a superior trust relationship, heightened standards and inherent application of the duty of a fiduciary. The duty of a CPA is not only to the client but to the public who is relying on the information provided by the CPA. The standard of care involved in the engagement between client and CPA involves independence, integrity and objectivity.
Next to speak as the registered investment adviser who reported that his fiduciary duty arises because the client has transferred the investment decision to the RIA. This creates the special relationship that causes the RIA to act for the client's benefit. A broker/dealer typically does not have this special relationship because the investment decision remains with the client. The broker/dealer is making buying recommendations. The standard of care for both remains the suitability of the investment under the circumstances of the client's risk tolerance.
last to present was the attorney who spoke of the special trust and reliance relationship existing between client and attorney. This fiduciary relationship creates the duty owed to the client by the attorney which is a duty of loyalty and utmost good faith. This duty continues even beyond the actual engagement. The standard of care that exists during the engagement in addition to the fiduciary duty consists of providing diligent representation for a reasonable fee, keeping confidences, and keeping client reasonably informed.
Many of those involved in the discussion thought that not infrequently professionals blurred the lines during the course of an engagement in two instances: 1) the financial self interest of the professional was put in front of the interest of the client; and 2) when there were multiple clients such as is often the case when representation family business owners.
The latter issue led to a discussion of who is the client. Because the duty owed is to the client (except in the case of a CPA who may owe a duty to the public, too), it is imperative to identify the client to the satisfaction of the professional and the client to avoid confusion or worse....breaches of the duty.
This discussion reminded us all that we need to understand the rules each profession and to identify clearly who is the client and communicate that to the client.