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.
In 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.”
