The consequences of a breach of fiduciary duty can be detrimental, both emotionally and financially. Investors spend years building their portfolio, and one bad act by a financial advisor can lead to significant losses. To hold a breaching financial advisor accountable for his or her misconduct, you should contact a breach of fiduciary duty attorney at The Law Offices of Robert Wayne Pearce P.A. to assist you.
What Is a Fiduciary Duty?
A fiduciary duty is a standard of care that requires one party to act in the best interests of the other. It is the highest standard of care that is made up of a set of legal and ethical obligations. The person acting on behalf of the other and bound by the set of obligations is called the fiduciary.
The fiduciary relationship exists in many settings and across all industries. For example, there is a fiduciary relationship between an attorney and client, a trustee and beneficiary, and corporate directors and shareholders. The fiduciary relationship between a financial advisor and investor is regulated by the Financial Industry Regulatory Authority (FINRA), which creates and enforces the rules governing financial advisors, stockbrokers and their brokerage firms.
What Duties Does the Fiduciary Owe?
In general, a fiduciary owes a duty of loyalty and a duty of care. Depending on the type of relationship and industry of the fiduciary, there may be additional duties.
Duty of Loyalty
The duty of loyalty requires the fiduciary to act in your best interest. For example, if a financial advisor profits from a sale or purchase of a security at your expense, the advisor has breached the duty of loyalty to you.
Duty of Care
A fiduciary must use appropriate care and diligence when making decisions in their capacity as a fiduciary. For example, a financial advisor should not over-concentrate your investments into a single stock or sector.
Specific Duties of Financial Advisors
Each state has its own fiduciary requirements of financial advisors. However, all states apply the following fiduciary duties to financial advisors and brokers.
Duty to inform investor
An investor must be fully informed of the risks associated with the purchase or sale of a security. The financial advisor is responsible for presenting all material facts that would influence an investor’s decision.
Duty to make suitable investments
Financial advisors must fully understand their client’s investment objectives before making recommendations. This includes knowing the client’s risk tolerance, tax status, and financial condition. All investment recommendations must be suitable to the investor’s needs.
Duty to refrain from self-dealing
A financial advisor cannot personally benefit from a transaction entered into by the investor.
The financial advisor must obtain the client’s expressed consent before initiating a purchase or sale unless the client has a discretionary account. After that, the advisor must act promptly to execute the client’s order.
Duty to avoid conflicts of interest
Investment recommendations made after June 30, 2020, must be free of any conflicts of interests between the investor and financial advisor. If unavoidable, the advisor must disclose the conflict to the investor.
What Is a Breach of Fiduciary Duty?
A breach of fiduciary duty can occur through acts that are contrary to your best interests, acts in furtherance of the fiduciary’s self interest, or failure to act. However, before you can take action against your fiduciary, you must have a valid claim.
Elements of a Breach of Fiduciary Claim
A claim for breach of fiduciary duty requires that you show a fiduciary duty, a breach, actual damages or harm, and direct causation between the breach and the harm.
The fiduciary must actually owe you a duty. To hold someone to the fiduciary standard of care, you must show that there is a special relationship based on trust between you and the fiduciary and that the fiduciary knowingly accepted that role.
The fiduciary must have acted contrary to your best interests. A breach of fiduciary duty can occur through deliberate acts or a failure to act.
The fiduciary’s breach must have caused you actual harm or damages. Even if you can prove that the fiduciary breached their duty, if there were no damages to you, then you do not have a valid claim.
There must be direct causation between the fiduciary’s breach and harm to you. Despite your damages, if they are unrelated to the fiduciary’s misconduct or an unforeseeable result of the breach, you cannot recover your losses.
If you suspect that a fiduciary has breached their duty to you, contact the breach of fiduciary attorneys at The Law Offices of Robert Wayne Pearce P.A. to discuss your case.
Financial advisors are entrusted with decision-making power that can impact your economic future. If your financial advisor is blatantly stealing money out of your investment account, this is both a breach of fiduciary duty and outright theft. However, some breaches are not as obvious but still cause you economic loss. For example, you may have a valid claim for breach of fiduciary duty if your advisor made investments contrary to your stated objectives or did not disclose enough information about an investment. Other common examples of breaching the fiduciary duty include:
- Unauthorized trading,
- Unsuitable investments,
- Undiversified portfolio,
- Account churning,
- Engaging in a conflict of interest, and
In each of these instances, the financial advisor acts contrary to your best interest.
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