Managing Our Money: The Law of Financial Fiduciaries as a Private Law Institution
The Philosophical Foundations of Fiduciary Law (Andrew Gold & Paul B. Miller eds., OUP, 2014), Forthcoming
47 Pages Posted: 10 Aug 2013
Date Written: August 9, 2013
This Article develops a theory of the law governing financial fiduciaries (most notably trust law). We conceptualize financial fiduciaries law as a private law institution that enhances individual autonomy by enabling people to safely delegate to others the authority over a significant aspect of their welfarist interests. This ability is autonomy-enhancing because we can enlist others to perform an increasingly complex task that impacts our savings, pensions, and bequeathable fortunes. Safely delegating this task to others relieves us of this burden, freeing us to focus on our intrinsically valuable projects.
We argue that this telos requires attuning financial fiduciaries law to the complicated incentive structure created by the task of managing other people’s money, which implies a discretionary authority that is particularly susceptible to carelessness and abuse. It also entails that in addition to crafting optimal incentives, the law of financial fiduciaries should aim to ingrain the moral vocabulary of the loyalty injunction, for the cultural perception of trustees and similar financial fiduciaries as the quintessential figures of the ethical subject as economic subject plays a significant, albeit instrumental, role in how this ambitious private law institution functions.
Translating these prescriptions into legal technology justifies the traditional structure of the duty of loyalty doctrine, composed of the strict sole-interest rule alongside a long list of exceptions and exemptions. More importantly, however, our analysis demonstrates that to properly shape financial fiduciaries’ investment policy, and thus the content of their duty of care, lawmakers should reexamine their fee structure and treat fiduciary pay as an exception to the duty of loyalty that should be carefully scrutinized and periodically reassessed. Finally, our account prescribes that although rules of financial fiduciaries law should not be mandatory, they should be formulated as sticky defaults that are tilted in the service of relatively weak and unsophisticated beneficiaries (or settlors).
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