Breach of Fiduciary Duty

People investing in the stock market place a great deal of trust in their investment advisers. Stockbrokers and other investment professionals are required to conduct themselves with the utmost integrity and not allow their own interests to come before those of their clients. Unfortunately, securities fraud and breach of fiduciary duty continues to occur.

What is Fiduciary Duty

People in a position of trust or fiduciary relationship, such as officers, directors, high-level employees of a corporation or business, agents and brokers, owe certain duties to their principals or employers. Fiduciary relationships, which are by their very nature relationships of good faith, may involve a variety of obligations depending on the exact circumstances.

Fiduciary duties require that the fiduciary acts solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage.

Brokers and investment advisors have several of obligations to meet their fiduciary duty:

  • Managing accounts to meet the needs and objectives of the client
  • Keeping client abreast of changes in the stockmarket
  • Acting responsively and sensibly to protect the client’s best interests
  • Keeping clients informed about each completed securities transaction
  • Explaining the impact and potential risks of recommended stock or fund trading strategies

The level of loyalty and care owed by licensed financial professionals to their clients depends on the type of accounts held by the investors or the relationship between the parties. In a discretionary account, the broker can manage the customer’s portfolio without obtaining explicit customer approval for each transaction. For a non-discretionary account, to avoid breach of fiduciary duty, the broker is required to research recommendations, make complete disclosures, always obtain customer approval on trades, and place orders in a timely manner.