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