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What Constitutes a Breach of Fiduciary Duty?

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When you trust a financial advisor with your money, they have a responsibility to act in your best interest. If you’ve lost money because of a financial advisor, you can file a civil suit to recover any damages you have suffered as a result of the breach. So, what constitutes a breach of fiduciary duty? Start with the fiduciary relationship itself. 

What is a fiduciary relationship and what is fiduciary responsibility?

A fiduciary is a person who holds a legal or ethical relationship of trust with one or more persons. In the investment world, you may have a fiduciary relationship with your financial advisor who has a legal obligation to act in your best interest. As your fiduciary, they have a responsibility to you, as the client.

It is important to note, not every financial advisor has a fiduciary duty to their clients. Investment advisors enter into a fiduciary relationship with clients, while stockbrokers may not these duties. However, when a fiduciary relationship exists, your financial advisor must follow specific ethical guidelines when managing your investments. These duties and obligations are setout in state and federal statutes, and the case law interpreting these statutes.

What constitutes a breach of fiduciary duty?

When a financial advisor violates their fiduciary relationship, this is a breach of their fiduciary duty. That “breach” may include providing misleading, inaccurate, or incomplete information to their clients about certain investments. For example, financial advisors cannot push you toward an investment by making inaccurate statements. They also cannot intentionally mislead clients about the nature and scope of the investment.

Similarly, financial advisors who earn money from commissions cannot act against your best interest simply to increase their commission. For instance, an investment advisor who makes multiple trades with the sole purpose of earning commissions (i.e., churring”) may violate their duties to you as a client.

More serious offenses may also constitute a breach of fiduciary duty. Financial advisors who use client money to buy securities for themselves or who trade investments without authorization from their client also breach their fiduciary duty.

What can you do about a financial advisor who breaches their fiduciary duty?

You can file a civil claim to recover any damages that flow from the beach. An attorney who specializes in securities litigation, or financial fraud, can help determine whether you have a case.

A lawsuit claiming breach of fiduciary duty must prove that your financial advisor had a fiduciary duty to you as a client, that a breach occurred, and that the breach caused you harm. This harm can mean losing money in the investment because of bad acts/actions of your financial advisor. Keeping good records of your interactions with your financial advisor is critical to establishing your claim.

If you believe your financial advisor has breached a fiduciary duty owed to you, please contact us to discuss your claim.