Stockbroker & Financial Advisor Breach of Fiduciary Duty

Breach of Fiduciary Duty Claims

Breach of fiduciary duty is one of the most common investor claims against stockbrokers and brokerage firms. Many investors rely entirely on the advice and recommendations of their brokers and trust that their broker is always looking out for their client’s best interest. Recognizing the profound level of trust this places in the broker, in many cases the law recognizes that brokers owe their securities customers a heightened duty known as a “fiduciary duty.”

Duty for Stockbrokers

Brokers have various duties when they make a recommendation for an investment to an investor. The broker has a duty to:

  • Understand the nature of the particular investment’s risks and rewards as well as the investment strategy before recommending the investment.
  • Make suitable recommendations to an investor based on that particular investor’s needs, objectives, and circumstances.
  • Ensure that the investor has information that will be material to them making a decision based on the investment recommendation.
  • Not omit any important information or misrepresent information presented to the investor.
  • The duty to place the client’s interests ahead of the broker’s or the brokerage firm’s interests
  • The duty to monitor the changing markets for impact on the client’s interests
  • The duty to act responsibly and with due care in serving the client’s interests
  • The duty to advise the client on the potential benefits and risks involved with broker recommendations/actions, and
  • The duty to keep the client abreast of all transactions that affect the client’s interests.

Fiduciary duties owed by the broker are considered “point of sale” duties. This means that the duty owed by the broker to the investor exists every time they make a recommendation to the investor. The courts have particularly stated that there is an ongoing fiduciary duty placed on brokers in cases when:

  • an investor is young or old, has never employed a broker, has very little knowledge or investment experience, and relies completely on the advice of the broker.
  • the broker and investor are long-time friends and enjoy social trust because of their underlying relationship which could cause them to accept recommendations of the broker.
  • the broker takes over actual control of the investor’s account.

Duty for Financial Advisors

Investment advisors, as opposed to brokers, regularly make discretionary trades and have an ongoing fiduciary duty to their clients. This means that they have all of the fiduciary duties listed above as well as other duties described under agency law.

Under agency law, the investment advisor has a duty to advise and warn their investors of changing market conditions. This ensures that investment strategies that may have been suitable years prior are changed based on the current market or investor financial circumstances.

Investment advisors also have a duty act loyally, fully disclose any conflicts of interest, and refrain from self-dealing. Investment advisors are supposed to be disinterested recommenders of the securities they deal with. They should not become involved in manipulative or market-making activities.

Federal law governs the conduct of investment advisers. These rules and regulations can be found in the Investment Advisers Act of 1940, codified at 15 U.S.C. § 80b-1 through 15 U.S.C. § 80b-21.

Duty for Investment Companies

Investment companies, corporations, and limited liability partnerships also fiduciary duties to investors. A corporation’s board of directors is responsible for the management of the company. While the day-to-day operations of a company are typically delegated to management officers, directors and officers are considered fiduciaries of the stockholders of the company.

Investment advisors for a mutual fund as well as a fund’s board of directors owe a fiduciary duty to investors as well. This includes the duty of loyalty, disclosure of material information and conflicts, and care, similar to the duties mentioned above.

Determining financial loss

A breach of fiduciary duty can result in a significant financial loss for individuals. In these cases, fiduciaries will likely deny any wrongdoing. However, an attorney will work diligently to determine the amount of financial loss in order to recover maximum compensation. Your attorney will:

  • obtain and review all financial records associated with their client’s portfolios, trusts, or other investments.
  • present cost-data analyses that project the performance of investments over time had the breach of fiduciary duty not occurred. This includes the performance of stocks, bonds, mutual funds, annuities, retirement accounts, or other investments.

take into account any other monetary loss or devaluation of investments caused by the breach of fiduciary responsibility.

Do You Have a Claim Against Your Stockbroker, Financial Advisor, Or Their Brokerage Firm?

If these duties are not met, both brokers and their firms can be held responsible for abusing the investor’s trust and confidence and breaching their fiduciary duties. To ensure your claim for breach of fiduciary duty is handled effectively, you need a law firm with the experience and fire power to handle your claim.  The lawyers at Meyer Wilson have recovered over $350 million for our clients.

We have recovered hundreds of millions of dollars in losses for clients nationwide, including in cities such as Los Angeles, San Francisco, Columbus, Cincinnati, New York, Seattle and Tampa.

For help with your stockbroker misconduct claim, complete our online form to request a free evaluation.