Failure To Follow Your Instructions Is a Breach of Fiduciary Duty
If brokers and advisors owe a customer any fiduciary duty to do anything, it is the “duty to perform the customer’s orders promptly in a manner best suited to serve the customer’s best interest.” In other words, brokers and advisors must follow customers’ instructions and do so promptly. Sometimes this duty is referred to as the duty to execute orders, but there are differences and additional responsibilities in the manner an order is executed.
If a customer gives a broker an order to purchase or sell a security; an instruction to enter a particular kind of order (e.g., market order, limit order, good-to-cancel (GTC) order); a stop-loss order, a buy-stop order, etc.; an instruction to use your cash only and not borrow (use margin) to purchase a security; or even direct a trade to a particular exchange or market maker, or electronic communications network (ECN), all brokers must follow those instructions and do so in a prompt manner.
Unless a customer directs otherwise, the broker can execute your trade in many places. The broker can execute it off an exchange (if it is a listed security), “market maker,” ECN, or through the firm’s own traders who buy and sell in and out of inventory. Regardless, the broker must also seek the “best execution” of the customer’s order, and that involves a quick assessment of the competing markets, market makers, or ECNs offering the most favorable terms of execution.
When a broker fails to follow your instruction and/or execute your order in a timely manner, you may be able to recover your investment losses resulting from the failure to follow your instructions. While brokers also have a duty to keep accurate records of orders placed, you should also keep records of the date, time, type of order placed and the price you were quoted at the time the order was placed; you should review the activity in your account on-line, if possible; you should review the confirmation you will receive in the mail or electronically shortly after the order is entered to be sure your instructions were followed; and if the order was not entered properly or timely, you should complain, in writing, by email or otherwise to the manager of the office.
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