In a nutshell, Fiduciary management is an alternative means of managing financial assets like pension plans for a company. Companies use it to handle large sums of reserved money that is either spent or going to be spent in order to help with their accounting or taxes. The term itself is vague, and is best explained from it’s origin.

The idea of managing these assets was introduced some time ago. It started as a proposal to invest funds that were inevitably going to be spent or utilized in some way. The concept came from a man named Anton van Nunen, and he thought of it as a way to invest and maintain the funds sort of like how an insurance policy is managed. It was quickly adopted and is vastly used today.

What makes up the fiduciary market are consultants and asset managers. The consultants are the middle men. They are the ones that put into action what the asset managers, and therefore the company board or trustees, have decided upon. They’re the lower of the two sects.

As for the asset managers, they represent the initiators of the plan as well as the face of the company. A company’s board or trustees will meet with the asset managers and devise a plan to invest the large sum of money (several million dollars at least). These managers will be the ones to allocate the money personally, making their tasks require far more responsibility.

Any company that offers a benefits package for their employees, including a pension or 401k plan, will have money set aside for it. Most small business chose to handle this money themselves, or hire a person for their company to do it, like a company accountant. The bigger companies that have a significantly larger employee base, and therefore more funds to manage, chose a third-party management company to do it for them. It’s substantially more expensive, but the more money there is to manage, the greater the chance of things going wrong, making it ideal to outsource.

Typically, the corporate giants of the world are the ones that utilize third-party asset-management contracts, but there are thousands of these giants. The dutch fiduciary market, for example, handles around $400 billion (or 300 billion euros) each day. That’s just an example of what level of funds we’re talking about.

No company can promise any employee any form of benefit (especially a pension plan) without some sort of reserve. As a company grows, they are more likely to offer these benefits. As it continues to grow, and their number of employees increases, so must the reserve. Eventually, should a company grow large enough, the sum of money will be so great that no single person could accurately handle it. Not every company grows to this level of power, but those that do will find that fiduciary management is both safe and essential to financial success.

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