FIDUCIARY RISK

A type of risk that accounts for the possibility of a trustee/agent who is not optimally performing in the beneficiary's best interests. This does not necessarily mean that the trustee is using the beneficiary's resources for his/her own benefit; this could be the risk that the trustee is not achieving the best value for the beneficiary.

For example, a situation where a fund manager (agent) is making more trades than necessary for a client's portfolio is a source of fiduciary risk, because the fund manager is slowly eroding the client's gains by incuring higher transaction costs than are needed. This would be a situation where the agent is clearly not optimally creating value for his or her client