Fiduciary services are generally services based on trust (from the Latin word fides – trust). Trust is of course involved in various relationships: clients need to trust their lawyers, employers need to trust their employees, and patients need to trust their doctors. However, the level of trust is significantly higher in fiduciary services. The client has to believe that the provider of such a service will not misappropriate the property entrusted to them, that they will professionally represent the client's interests, and that they will prioritise such interests over those of other persons and, especially, their own interests. The specific content of fiduciary services may include a number of relationships, such as establishing and managing a trust fund. A fiduciary may own certain property for their client (settlor), e.g. shares, an interest in a private limited company, real estate, an aircraft or a ship. However, fiduciary services may also include general representation of a foreign businessperson in the Czech Republic or acceptance of an executive or supervisory position in a business corporation. In all cases, such relationships require an above-standard level of trust.
Why should anyone trust another person at all?
Of course, offering services based on trust in the Czech Republic – or in a post-communist country in general – is a bit like tilting at windmills. After all, ethics and the simple joy of fairness went to hell during the communist era, and I certainly do not feel they have been significantly restored since 1989.
Above all, I think that clients should not blindly trust a fiduciary service provider they are using for the first time. One exception – that could actually be the most natural and desirable situation – could be when a person interested in a fiduciary service convinces their long-standing legal advisor, accountant, tax advisor or a family member to become, for example, a trustee for them. This is the most natural way to establish a fiduciary relationship as it is derived from previous experience, and should always be the first choice. If the client does not know such a person, they should be very careful and give the fiduciary time to dispel their doubts rather than a priori assuming that the fiduciary is a moral and professional expert.
A number of indicators should be monitored:
The client should verify the fiduciary's experience, including the range of their knowledge, because fiduciary services may require a diverse and wide scope of knowledge and skills, from knowledge of real estate issues, law, economics, accounting and taxation, to trading in financial markets.
The fiduciary's impartiality is an important aspect. Unfortunately, this is only ascertainable from references or from publicly available information on the activities performed by the fiduciary. On the top of that, there are some professions that have impartiality in their DNA. I would say, for example, that the vast majority of notaries are genuinely impartial and trustworthy.
A fiduciary's ethics and morality are also equally important and similarly ascertainable. For me, personally, the spiritual beliefs of a person are also important in this context. On the other hand, such things may be perceived negatively by some people.
References are irreplaceable, of course
Public sources may be used to verify whether there has been any negative publicity, or the suspicion of unethical conduct or misdeeds associated with a fiduciary. In this respect, the insolvency register can be a particularly good source of information about insolvency administrators. This register contains the insolvency files from all insolvency proceedings, so if a settlor considers engaging a fiduciary who is also an insolvency administrator, they can view the respective insolvency proceedings to see whether there have been any complaints about the fiduciary in the past, whether the fiduciary has been fined by a court or, in some cases, relieved of their office due to breach of duty. In addition, some administrators have a security clearance certificate or a certificate of competence to perform sensitive activities, i.e. a certificate issued by the National Security Authority that is necessary for the performance of activities in sensitive fields, inter alia, from the perspective of integrity. In general, membership in professional chambers, especially those with compulsory membership, is another good sign of the professionalism and at least the basic decency of a potential fiduciary. This may be membership in the Bar Association, the Chamber of Auditors or the Chamber of Tax Advisors, the Notary Chamber or the Bailiffs' Chamber.
The most important thing for me, however, is my personal impression of a client's dealings with a potential fiduciary services provider. Simply put, whether it clicks between the client and the fiduciary. I believe that in the vast majority of cases, the settlor is an experienced, literally seasoned businessperson able to analyse the person sitting across from them at the table. I definitely recommend carefully preparing for an interview with a potential fiduciary services provider, checking the fiduciary in advance, and also preparing topics for conversation and questions, and then focusing not only on the verbal responses but also on their body language, convincingness, behaviour and definitely also on temperance or greed when discussing the price of the future services.
Despite the careful preparation and selection of a fiduciary, control mechanisms still remain important. The fiduciary is of course subject to the general risk of loss of reputation or the imposition of property or even criminal sanctions but, at some point, even such a risk might not necessarily be sufficient to stop the fiduciary, and so to eliminate such risk it is appropriate, for example, to use more than one fiduciary, with one trustee being a professional and the other a friend or family member. The mechanism for supervising the activities of the fiduciary might be regulated, including a provision in the respective statutory documents on how to remove a non-professional or immoral fiduciary.
When it is moral and legal
Like many other tools, fiduciary services can be used well or badly. One can certainly not object to the creation of a charitable foundation, a private foundation, or a trust fund for charitable purposes. Similarly, a person who wants to arrange their inheritance as they see fit and does not want to be limited by the rights of legal heirs can quite rightfully and lawfully create a trust fund for this purpose. I have encountered an owner who was hiding his assets for fear of envy and ill will in a small town, and also a corporation concealing its ownership for fear of a competitor's reaction. These are all undoubtedly legitimate reasons.
When it is immoral or even illegal
On the contrary, hiding property to gain a tax advantage, transferring criminal liability to a straw man, relieving a wife of money in a divorce, or laundering money are, of course, not only immoral but also unlawful reasons that may be severely punished by criminal law.
Personally, before entering into a new contract, I always very carefully consider the client’s motivation because on the one hand I do not want to have problems with the law, and on the other I do not want to support the unethical behaviour that is so prevalent around us in any way whatsoever, or the advisors and various intermediaries willing to lend a hand to such (often well-paid) work.
In the end, however, distinguishing between the legal and illegal use of fiduciary services is quite simple because, in the latter case, the fiduciary service is always just for show and every professional fiduciary will recognize it. Then it is down to moral considerations as to whether they will give up their (often very above-standard) remuneration and refuse to provide the required fiduciary service in such circumstances.
