What is an indirect conflict of interest?

An indirect conflict of interest arises when interests clash because of relationships or connections involving professionals who are hired to act on behalf of a fiduciary or trust. In this situation, the hired professionals may have personal interests, relationships, or obligations that could compromise their ability to act in the best interest of the trust. For example, if a trustee engages a financial advisor who has a personal relationship with a beneficiary, the advisor's advice may be influenced by loyalty to that beneficiary rather than the objective needs of the trust itself. This can lead to decisions that are not solely based on fiduciary duty but rather influenced by those external relationships, creating a scenario where the trustee's interests and those of the trust could diverge due to these unforeseen influences.

The recognition of such indirect conflicts is crucial in fiduciary duties. It helps ensure transparency and adherence to ethical standards, maintaining the integrity of the fiduciary's role in managing assets for beneficiaries. Understanding this type of conflict is essential, as fiduciaries are expected to act in the best interest of their beneficiaries without any undue influence from external relationships.