Topic 11 Business Law
Topic 11: Learning Objectives Describe and distinguish between the elements of agency, suitability, fiduciary responsibility and the duties of agents to their principals including clients and their employers and the duties of fiduciaries to their clients and employers. Describe the elements of a contract, special issues with oral contracts, and mechanisms for enforcement of contracts. Describe the nature of professional liability and compare mechanisms for controlling this risk to clients and planners.
Topic 11: Contracts There are four elements that must exist in order for a contract to be legally enforceable: – Agreement A legally binding offer and an acceptance of it by the one to whom it is made – Competent parties – Consideration Legally sufficient consideration that supports the contract – Lawful Contract must be for a lawful purpose
Topic 11: Agency Relationships in Financial Planning The planner may be an agent for the client in the financial planning process. The planner may be an agent for a company whose products he or she sells. The planner is an agent for his employer. The client may have named an agent to act on his or her behalf under a Power of Attorney document. The client may give the planner discretionary authority to act as an agent regarding the investment account. Employees are agents of the employer.
Topic 11: Agent The duties of an agent to the principal are: – To be loyal – To obey the principal’s instructions – To exercise reasonable care, skill, and diligence in carrying out the principal’s instructions
Topic 11: Principal The duties of a principal to the agent are: – To give him or her the opportunity to work – To pay the agent – To reimburse the agent for authorized expenditures – To keep accurate financial records – To indemnify the agent for liabilities incurred while acting for the principal
Topic 11: Fiduciary Liability The responsibility of a fiduciary is always to act with the best interests of his or her client as the number one priority
End of Topic 11