Investment advisers and fiduciary relationships

In a High Court case the question of whether a firm of investment managers and advisers acted as agents and/or fiduciaries for their client, Mr Mansouri, was considered.  We look at the nature of the relationship between investment advisers and their clients, and the duties and obligations that flow from this.

Mr Mansouri’s complicated financial affairs

Mr Mansouri was formerly Assistant Foreign Minister for the Kingdom of Saudi Arabia and a wealthy man. When he died in 2010, leaving a number of surviving relatives, it was unclear to the administrator of his estate what had happened to that wealth. It appeared, however, that a number of transfers of Mr Mansouri’s assets had been made to his niece during his lifetime. It also appeared that Mr Mansouri had made a number of investments through Acropolis Capital Partners Limited (ACP) and Acropolis Capital Management Limited (ACM) . Mr Nabil Chartouni, a director of ACM, had advised Mr Mansouri over financial matters and had arranged the gifts.

ACP and ACM refused to give information to Mr Mansouri’s administrator about the assets owned and lifetime gifts made. As a result  the administrator sought a court declaration that ACP and ACM were Mr Mansouri’s fiduciaries or agents and thus under a duty to account.

After a detailed consideration of the evidence, the court found that ACP and ACM undertook and managed investments on behalf of Mr Mansouri and that “the circumstances gave rise to the requisite relationship of trust and confidence on which a fiduciary relationship is founded.” As such ACP and ACM were under a duty to account and provide records to Mr Mansouri (and the administrator of his estate) in relation to assets and transactions for the period when they were acting in a fiduciary capacity.

What is a fiduciary?

As stated in the case report, fiduciary relationships arise in a range of business relationships and occur “where a substantial degree of control over the property or affairs of one person is given to another person.” A fiduciary relationship always involves a degree of trust and usually involves the provision of advice and information from one party to the other. Those providing professional services, such as solicitors, accountants and investment advisers, have a fiduciary relationship with their clients as do trustees with the trust’s beneficiaries.

Duties and obligations arising in a fiduciary relationship

To a limited extent these may be fact specific as the fiduciary duties may vary depending on the contractual obligations that may also arise between the parties. As the Law Commission has commented, ”Fiduciary duties cannot be understood in isolation. Instead they are better viewed as “legal polyfilla”, moulding themselves flexibly around other legal structures, and sometimes filling the gaps.” Generally, however, a fiduciary relationship will give rise to the following duties:

• A duty of confidentiality: not to disclose information about clients’ affairs.
• A duty not to profit from the relationship: trustees, for example, cannot profit from the trust assets, although many trust deeds will temper the obligation to some extent by, for example, allowing a trustee who is also a director of a company in which the trust holds shares to retain his director’s remuneration.
• A duty of no conflict and undivided loyalty: a fiduciary should not allow his personal interests, or those of another client, to conflict with the best interests of the client. He must be loyal to the client and make available to him all the information that is relevant to the client’s affairs. In the context of an investment adviser this will usually involve regular accounting to the client as to the performance of his investments, a matter which would normally also be covered in any client agreement.

In practice the common law rules laid down by the nature of the fiduciary relationship will be bolstered and supported by professional regulators such as the Solicitors Regulation Authority and the Financial Conduct Authority, firm’s own compliance officers and departments and the use of internal structuring such as the imposition of Chinese walls.

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