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By Tamar Frankel


The Montréal Review, November 2012


 "Fiduciary Law" by Tamar Frankel (Oxford University Press, 2010)


Some subjects "grow on you." They keep recurring in the materials you read, and the stories you hear. Perhaps these subjects crop-up because you think about them. For me, fiduciary law is one of these subjects. In early 1970s I worked on a treatise: The Regulation of Money Managers, focusing on investment advisers and mutual funds. In 1983, I published an article entitled "Fiduciary Law," which is alive and well in the academic literature to this very day. Throughout the years I taught courses on Trusts and Estates, on Corporate Law and on Securities Regulation, and am now teaching a course on Fiduciary Law.

What was the special draw of this branch of the law? One reason for its attraction is its variety and detail. There are so many fiduciaries, old and new! I sought to understand their similarities and differences and find the reasons for the different rules that apply to each type of fiduciary. I concluded that we can recognize fiduciary relationships by few features, which lead to the rules that govern them. Then I wrote this book.

Fiduciary relationships play an important role in societies around the globe. No group of individuals can survive, let alone prosper, unless its members rely on each other to some extent. A few members may specialize in services that many need, while other members must rely on these experts to avoid wasteful duplication of effort.

What are the main features of all fiduciaries?

Fiduciaries offer services. They include agents, who buy food in the market, trustees who manage millions of dollars, investment advisors and money managers of mutual funds, corporate directors who participate in managing large and small corporations, lawyers and physicians. Fiduciary law principles apply to government employees, to judges and to members of the legislature. The services which these actors offer involve another important feature.

To perform their services the fiduciary must be entrusted with property or power or both. A trustee cannot manage trust property without controlling it; the corporate board of directors cannot manage the corporation without a measure of control over corporate property, organization, and functions. Custodians have custody of entrusted property but have no power to determine how to deal with the property. They must follow the directives of the owners. Therefore, the custodians' power is more limited as compared to that of trustees. Yet all these service-givers must be entrusted with property or power for the sole purpose of performing their services for the benefit of the entrustors.

Entrustment poses risk to those who seek fiduciaries' services. That is because fiduciaries may misuse entrusted property or power, and divert their use. Or they may fail to perform their services as proficiently as they promised and are expected to do. But in most cases the entrustors cannot control the use of entrusted property or power without undermining the very usefulness of the relationship. After all, if an entrustor must watch over his money-manager to ensure honest and qualified performance, the entrustors will not be able to engage in their own occupation, or take a vacation or recuperate from an illness. Besides, entrustors may not be as expert in money management as the fiduciaries are. But even an expert, such as a surgeon, who is undergoing surgery, cannot control the surgeon who performs the surgery. In addition, in most cases it is impossible to control the activities of fiduciaries by specifying in detail how they are to perform their services. These services are too complex and the environment in which they are performed is changeable and diverse, which prevents detailed directives. To be sure, entrustors can give general directions to their fiduciaries, but they cannot give specific orders.

Thus, entrustors must trust their experts to tell the truth, to keep their promises, to use entrusted property and power for the benefit of the enrustors, and to provide the services they promise in a proficient way. If the risk to entrustors is too great, they will avoid resorting to fiduciaries' services. At this point the law enters the scene.

Law plays a crucial role in facilitating reliance among members in society by reducing the entrustors' risks and raising trusted persons' incentives to act in a trustworthy and expert manner. The costs of entrustors are reduced by prohibiting fiduciaries' abuse of trust and negligent services, and the cost of fiduciaries is reduced by the law's guarantees of their trustworthiness.

Now we can estimate how strict fiduciary law should be in regulating the various fiduciary services. The more power and property are entrusted, the more harm the misuse and abuse of entrustment is possible, the less control the entrustor can have over the fiduciary, the stricter the rules governing the fiduciaries are likely to be.

The converse is also true. If the entrusted power or property is not significant and if the entrustor can significantly control the fiduciary in the performance of his services, the laws governing fiduciaries are likely to be far more lenient. The assumption is that the entrustors can fend for themselves, if not entirely, then to a greater extent.

Fiduciary relationships reflect the internal conflicts in human nature: The need to rely on and trust others, on the one hand, and the necessity to suspect, and self-protect from others, on the other hand; the drive for independence, on the one hand, and the requirement for dependence, on the other hand. An unambiguous position is easy to specify. It is the appropriate balance among extremes that is so difficult to reach and maintain.

"Chelsea Bridge" by Stuart Luke Gatherer (2007, Oil on canvas, 114 x 165 cm)

The purpose of this book is to highlight the building blocks of fiduciary law and demonstrate its structure and variations. Most chapters conclude with a short outline of debates. Debates can teach us much.

The book opens with a definition of fiduciary relationships. It proceeds to tell the story of fiduciary law, starting with the Code of Hammurabi about 3000 years ago, and then outlines the main fiduciary duties: avoiding conflicts of interest and performing fiduciary services with care. A following chapter defends the view of fiduciary law as a category and the next chapter proceeds to list the remedies imposed upon a breach of fiduciary duties. The conclusion points to the role of fiduciary law in facilitating trust and an epilogue, demonstrates the fiduciary status of the government and its officials in a democracy. After all, the power they exercise is entrusted by society, and its use is designed to benefit society.

This book addresses lawyers and non-lawyers, including persons who engage in fiduciary services and those who are entrustors. During our life we usually occupy both positions and act in both capacities. A person may be a director on the board of one company, and an investor in another company; or a lawyer serving clients as well a patient of a physician. Thus, this book outlines the law that constraints us in our role as fiduciaries, and protects us in our status as entrustors.


Tamar Frankel is a Professor of Law at Boston University Law School.


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