How To Help Your HOA Board Understand Fiduciary Responsibility
If you’re an HOA board member, then you have a fiduciary responsibility to the members of your community. Many board members often feel overwhelmed or unsure about what their fiduciary duties mean or entail, especially if they’re new to community management. However, as an HOA management firm, we’ve seen firsthand the importance of fiduciary duties and proper understanding of this responsibility.
Board members who fully understand fiduciary responsibility can more effectively lead their communities and empower their peers to do the same. If you’re not sure how to aid your HOA board members in embracing their fiduciary responsibility, here are some of the basics and how your board members can most effectively fulfill their duties.
What Is a Fiduciary?
At its core, a fiduciary is an individual or entity that is legally bound to act in the best interest of others. In the context of a homeowners association, board members are considered fiduciaries as they are entrusted with making decisions on behalf of their community and its members. This means that board members must put the needs of the community above their own personal interests.
What Is Fiduciary Responsibility?
There are two main duties that fall under the umbrella of fiduciary responsibility as an HOA board member: the duty of care and the duty of loyalty. The duty of care is also referred to as the duty to perform due diligence, and it requires board members to act with reasonable care and skill when making decisions for the community. This includes thoroughly researching issues, seeking expert advice when necessary, and acting in a responsible and prudent manner.
Moreover, board members must stay informed and up-to-date with current laws, regulations, and market trends that may affect the community. They must also regularly attend board meetings and make informed decisions that are fair for the entire community. Even if the decision may not be popular with some, exercising due care ultimately means investigating matters to their fullest extent and implementing the fairest decisions for all parties.
The other main fiduciary duty, the duty of loyalty, is a responsibility to protect the best interest of the HOA and not do anything contrary to its interests. This prohibits board members from taking advantage of their position and deriving personal benefits as a result of their status. They cannot use their position of power to further their personal interests, and they must always disclose any potential conflicts of interest. Board members must also avoid favoritism or discrimination when making decisions and treat all members fairly and equally. This duty is essential to maintaining the trust and confidence of the community.
How Can You Empower HOA Board Members?
It is crucial for HOA board members to fully understand their fiduciary responsibilities in order to most effectively serve their community. That’s why we always advise that communities work with their HOA management firms to organize new board member orientations. This orientation is typically conducted by the community association management company and will include a comprehensive overview of the community’s governing documents, meeting procedures, financial responsibilities, and fiduciary duties.
In addition to orientation, it’s important for HOA management firms to regularly communicate with board members and provide ongoing guidance and training. Your HOA board and community management company can sit down together to discuss targeted duties and board member best practices to ensure that everyone understands how to best serve their community. If someone does stray from these guidelines, disciplinary actions may be necessary to protect the community.
If you want to ensure that your board and all of its members are acting within the law and within your duties as a fiduciary, consulting an HOA management firm can help give you peace of mind and enable your community’s long-term success. With over 30 years in the industry and over 1,500 successfully managed communities, The Management Trust has the expertise to guide you in all aspects of community association management. To learn more about our comprehensive HOA management services, contact us today and get started. We look forward to working with you!
