Paralegal Advanced Competency Exam (PACE) Practice Exam

Under what conditions can a fiduciary impose a conflict of interest?

1. When the conflict benefits the fiduciary

2. Only if it is disclosed to the beneficiary

3. Conflicts of interest should not occur

4. When the beneficiary is unaware

The correct answer is: Conflicts of interest should not occur

A fiduciary has a legal and ethical duty to act in the best interests of the beneficiary, putting the beneficiary's needs above their own. The role of a fiduciary involves a relationship of trust and confidence, and any conflict of interest undermines this obligation. Therefore, it's essential to recognize that conflicts of interest should not occur under proper fiduciary standards. The notion that conflicts of interest cannot be present is rooted in the principle of loyalty, which mandates that the fiduciary must avoid situations where personal interests might prevail over the interests of the beneficiary. While there may be instances where a fiduciary could find themselves in a potential conflict of interest, the expectation is that measures are taken to either eliminate the conflict entirely or ensure that it does not negatively influence the fiduciary's duty to the beneficiary. Acknowledging or disclosing a conflict does not absolve a fiduciary from their duty to avoid such conflicts. Therefore, while it is crucial that beneficiaries are made aware of potential conflicts (and their implications) if they arise, the ethical standard remains that these conflicts should not occur at all, reinforcing the integrity of the fiduciary relationship.