Why “Fiduciary Duty” Has Two Prongs, Not Just One

[Editor’s Note:  The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced.]

Even people familiar with the term “fiduciary duty” often don’t realize that it consists of two duties, not just one:  1) a duty of care; and 2) a duty of loyalty.

german-shepherdIn laymen’s terms, “duty of care” means that you know what you’re doing.

For Realtors, that means you are (very) knowledgeable about the local housing market; are expert at such things as marketing, pricing, and negotiating; and know the in’s and out’s of residential real estate contracts.

“Duty of loyalty” means that the professional uses their skill and knowledge to serve their clients’ interests — not their own.

Looking Out for Whose Interests?

Missing either attribute is fatal for clients.

So, if the fiduciary doesn’t know what they’re doing — whether due to inexperience, ineptitude, or inattention — the client is obviously ill-served.

However, if the fiduciary is brilliant at what they do, but lacks integrity . . . look out!

Call this, “The Goldman Sachs Risk,” after the Wall Street firm that trades not just for clients, but apparently — at least occasionally — also against them, via its own proprietary account.

See, “shorting the housing market.”

Fiduciaries:  a Menagerie

Think of the possible variations in animal terms — specifically, sheep, wolves, and German shepherds.

A sheep doesn’t know how to protect anyone.

A wolf knows, but instead uses its cunning to prey on quarry.

What clients really want is a “German shepherd” — someone who’s both a fierce, knowledgeable advocate, and who’s also loyal to their clients.

P.S.:  The same vocabulary, I’d argue, can be used to assess Presidential aspirants (anyone think Donald Trump is a German Shepherd??).

See also, “Goldman Sachs:  It’s Not My Dog“; and “Drug Dealers vs. Bankers: ‘Top 10’ Differences.”

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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