The term fiduciary refers to a person that holds a legal or ethical relationship of trust with another party. A fiduciary is typically used to manage the assets of an investor, or a group of investors.
Derived from the Latin word fiducia, which means trust, a fiduciary is a person or business with the obligation to act on another person's behalf (referred to as the beneficiary) when the situation requires them to act with honesty and integrity. Stockbrokers, asset managers, and banks can act in what is known as a fiduciary capacity when they are asked to keep a customer's assets in safekeeping. For example, the managers of a company's 401(k) plan are considered fiduciaries.
Under the law, a fiduciary has both a legal and ethical responsibility to their clients. Fiduciaries must act in the sole interest of their client, and are forbidden from personally profiting from the assets they manage. They must also avoid transactions that would be deemed a conflict of interest.