Which of the following is considered a source of fiduciary liability?

Engaging in self-dealing is considered a significant source of fiduciary liability because it represents a conflict of interest where a fiduciary takes advantage of their position for personal benefit rather than acting in the best interest of the beneficiaries. Fiduciaries are legally obligated to manage assets and make decisions based solely on the interests of those they serve, which means they must avoid situations where their personal interests could compromise their judgment or the welfare of the beneficiaries. When a fiduciary engages in self-dealing, they breach their duty of loyalty and can face legal repercussions, including financial penalties and damage to their reputation.

In contrast, following the terms of the governing document, documenting asset reviews, and diversifying investments are generally considered best practices that align with a fiduciary’s obligations rather than sources of liability. These actions are essential for fulfilling fiduciary duties and ensuring the prudent management of assets. They help mitigate risks and serve to protect the interests of the beneficiaries, thereby reducing the likelihood of legal liability.