No advisory or fiduciary relationship: Overview, definition, and example
What is no advisory or fiduciary relationship?
A "no advisory or fiduciary relationship" clause is a provision in a contract that clarifies that one party does not have a duty to act in the best interests of the other party in a way that a financial advisor or fiduciary would. It often states that no advisory or fiduciary relationship exists between the parties, which means that one party is not obligated to provide advice or act in a manner that would typically involve a higher duty of care.
Why is no advisory or fiduciary relationship important?
This clause is important because it helps to limit liability and set clear expectations about the nature of the relationship. It ensures that the parties understand that the agreement is not meant to create a special duty of care, such as the duty to put the other party's interests ahead of one's own (which fiduciaries are required to do). This is commonly used in commercial contracts, such as those between financial institutions, brokers, and clients, to avoid the unintended creation of a fiduciary duty.
Understanding no advisory or fiduciary relationship through an example
A company enters into a business partnership with a consultant to provide marketing services. The contract includes a "no advisory or fiduciary relationship" clause to make it clear that the consultant is not acting as a financial advisor, and there is no expectation that the consultant will make decisions in the company's best interest as a fiduciary would. This helps the consultant avoid being held liable for business decisions made by the company based on the consultant’s advice or input.
Example of a no advisory or fiduciary relationship clause
Here’s how a no advisory or fiduciary relationship clause may look like in a contract:
Nothing in this agreement shall be construed as creating an advisory, fiduciary, or other special relationship between the parties. Neither party shall have any obligation to act in the best interests of the other party in the same manner as a fiduciary or advisor.
Conclusion
This clause helps to protect parties from unexpected liabilities by making it clear that no special relationship, like that of a financial advisor or fiduciary, is created by the contract. It is essential in maintaining the arms-length nature of a commercial relationship and setting the right expectations about the responsibilities of each party.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.