Don’t Get Left Holding the Bag for Your Broker’s Mistakes: You can sue brokers and advisors for their negligence and breaches of fiduciary duties!

Brokers and financial advisors are held to a high degree of care in their dealings with the investors they serve. Investors look to their financial professionals for advice about how to reach their goals and trust those professionals to make the right recommendations. When brokers or advisors fail to meet the standard of care and investors lose money by following bad advice, an action for negligence or breach of fiduciary duty may be appropriate.

A broker or advisor does not need to act intentionally in these matters in order to be held liable for your losses. There are many cases where a financial professional with the best intentions recommend unsuitable investments or failure to diversify an investor’s accounts in a way that sufficiently limits risk exposure in breach of his/her duties to investors.

Depending upon the timing of the recommendation, where you live and the nature of your relationship with your advisor, he/she may be held to an even higher standard of care as a fiduciary to always act in your “best interest” in making recommendations. All investment advisors and stockbrokers managing discretionary accounts who charge a fee to monitor and manage your portfolios are “fiduciaries” and held to the highest standard of care in everything they do in the relationship. The law requires an investment advisor or broker with discretionary authority to: 

  1. manage the account in a manner directly comporting with the needs and objectives of the customer as stated in the authorization papers or as apparent from the customer’s investment and trading history; 
  1. keep informed regarding the changes in the market which affect his customer’s interest and act responsively to protect those interests; 
  1. keep his customer informed as to each completed transactions; and
  1. explain forthrightly the practical impact and potential risks of the course of dealing in which the broker is engaged.

Even brokers without discretionary authority have a set of fiduciary duties limited to each recommendation or transaction: 

  1. the duty to recommend (investments) only after studying it sufficiently to become informed as to its nature, price, and financial prognosis; 
  1. the duty to perform the customer’s orders promptly in a manner best suited to serve the customer’s interests; 
  2. the duty to inform the customer of the risks involved in purchasing or selling a particular security;  
  3. the duty to refrain from self-dealing … ;
  4. the duty not to misrepresent any material fact to the transaction; and 
  5. the duty to transact business only after receiving approval from the customer.

For all recommendations after the June 30, 2020 effective date of Regulation Best Interest (Reg. BI) all brokers now have a fiduciary duty to avoid conflicts of interest; and if they cannot avoid them, they must disclose all conflicts of interest; and all brokers must now act in the “best interest” of the customer in making any recommendation.

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