Breach of fiduciary duty is one of the most common investor claims against financial professionals and their firms. Investors rely entirely on the advice and recommendations of their advisers and trust their advisers. Recognizing the profound level of trust this places in the adviser, the law recognizes that advisers owe their 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 recommendations that are in the best interests of 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.
Duty for Investment Advisers
Investment advisers, 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 adviser 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 advisers also have a duty act loyally, fully disclose any conflicts of interest, and refrain from self-dealing. Investment advisers 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.
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 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, Investment Adviser, Or Their Brokerage Firm?
If these duties are not met, brokers, advisers, 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.