The Most Common Forms of Breach of Fiduciary Duty (And What to Do)

Breaches of fiduciary duty are unfortunately common. Since the fiduciary duty is the highest legal standard of care, however, there are severe consequences for a breach of fiduciary duty. With the help of an investment loss recovery attorney, you can hold the fiduciary accountable for his or her misconduct. What Is a Fiduciary Duty? A fiduciary is a person entrusted to act in the best interests of another (i.e. the principal). Once the fiduciary agrees to the relationship, the fiduciary is bound by a set of legal and ethical obligations, known as fiduciary duties.  In general, all fiduciaries owe a duty of loyalty and a duty of care. Some fiduciaries will owe additional duties based on the relationship and the industry in which they are in.  The duty of loyalty requires fiduciaries to act in the best interest of the principa, avoid any conflicts of interest, and refrain from self-dealing. The duty of care means the fiduciary must make informed decisions based on all information available.  Fiduciary Duties of Financial Advisors  While all financial advisors have a duty of care to their clients, only registered advisors have a fiduciary duty. It is important to know whether your financial advisor is registered with the U.S. Securities and Exchange Commission (SEC) or a state securities regulating agency. Financial advisors who are not registered can make investments that benefit them, as long as the investment is within your stated objectives. A registered financial advisor, on the other hand, can invest only if it is in your best interest. For registered financial advisors, the fiduciary duties owed vary by state. However, the following fiduciary duties apply to all registered financial advisors in all states Duty to Recommend Suitable Investments Prior to recommending an investment, the financial advisor must study and understand the investor’s objectives, tax status, and financial situation, among other things. Any investments that the financial advisor recommends must be suitable to the investor’s needs.  Duty to Inform Investor A financial advisor must fully inform the investor of the risks associated with the purchase or sale of a security. The advisor cannot misrepresent any material facts regarding the transaction. Duty to Act Promptly and with Authorization  All client orders must be performed promptly and with investor’s express consent. The advisor must obtain separate authorization for each investment unless the investor has a discretionary account.  Duty to Refrain from Self-Dealing  A financial advisor cannot initiate a transaction where he or she personally benefits. Duty to Avoid Conflicts of Interest For any recommendations made after June 30, 2020, financial advisors have a fiduciary duty to avoid any conflicts of interest. If unavoidable, the advisor must disclose the conflict to the investor.  What Constitutes a Breach of Fiduciary Duty? A breach of fiduciary duty occurs when the fiduciary fails to act in the best interest of the principal. This can happen through an intentional act or failure to act.  There are four elements to a valid breach of fiduciary duty claim. Duty A fiduciary relationship must exist for the fiduciary to owe a duty. You must show that the fiduciary knowingly accepted that role to hold them to the fiduciary standard of care. This is typically shown through a written agreement between the parties, such as a customer agreement. Breach The fiduciary must act contrary to your best interests. A breach of fiduciary duty can be shown through deliberate acts, such as making decisions on your behalf without consent. You can also prove a breach through the fiduciary’s failure to act—for example, not disclosing a conflict of interest.  Damages You must suffer actual harm or damages from the fiduciary’s breach. Proving there was a breach is not enough for a valid claim of breach of fiduciary duty. Damages can be either economic or non-economic, such as mental anguish.  Causation There must be a direct causal link 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.  What Are Common Forms of Breach of Fiduciary Duty? Below are just a few examples of how a financial advisor can breach his or her fiduciary duty. In each instance, the fiduciary fails to act in the best interest of the investor. Misrepresentation or Failure to Disclose Information If a financial advisor does not present a client with all material information about an investment, this is a breach of fiduciary duty. Material information is what a reasonable investor would consider important when deciding whether to invest.  Sometimes financial advisors will mislead investors by omitting information, such as risk factors or any negative information about a stock.  Excessive Trading Excessive trading, also known as churning, in your account is a breach of fiduciary duty. Financial advisors will make large numbers of trades solely to generate more commissions for themselves.  Unsuitable Investments Financial advisors must “know their customer” before making investment recommendations. This includes understanding the client’s investment objectives, risk tolerance, time horizon, financial standing, and tax status. The advisor breaches their fiduciary duty if they make an unsuitable investment, even with the best intentions.  Failure to Diversify Your financial advisor must recommend a mix of investments so that your assets are properly allocated among various asset classes and industries. Failing to diversify your portfolio puts you in a position of great risk and is a breach of fiduciary duty. If your assets are over-concentrated in a particular stock or sector, you may experience significant losses if the company or industry does not perform well.  Failure to Follow Instructions When you give instructions to your financial advisor, they have the fiduciary duty to promptly perform your orders. If your advisor fails to follow your instructions in a timely manner and you suffer financial losses, you can recover.  What To Do If Your Financial Advisor Breached a Fiduciary Duty If you lost money at the hands of your financial advisor, there are several potential courses of action. An experienced investor loss recovery attorney can walk you through the different options and...

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What Is Financial Advisor Malpractice?

As an investor, you expect your financial advisor to properly manage your investment portfolio. Unfortunately, this is not always what happens. Financial advisors owe their clients certain obligations with respect to their investment accounts. Failure to adhere to these obligations can result in a claim for financial advisor malpractice. In certain circumstances, the financial fraud committed by your financial advisor will be obvious. For example, if your financial advisor forged your signature on a document, he or she clearly committed misconduct. However, most financial malpractice claims are not this straightforward.  The investment loss recovery attorneys at The Law Offices of Robert Wayne Pearce, P.A., have helped hundreds of investors recover losses caused by financial advisor malpractice. Contact us today for a free consultation. What Are My Financial Advisor’s Obligations and Duties to Me?  Registered financial advisors must adhere to certain fiduciary duties, or obligations, with respect to their clients. Financial advisors who are not registered and are not making securities recommendations to retail customers still owe their clients certain obligations, but they are not as stringent as fiduciary duties. Fiduciary Duties Registered investment advisors are bound by fiduciary duties to their clients. The Investment Advisers Act of 1940 defines the role and responsibilities of investment advisors. At its core, the purpose of this act was to protect investors.  A financial advisor owes their client a duty of care and a duty of loyalty. The Securities and Exchange Commission (SEC) interprets these fiduciary duties to require a financial advisor to act in the best interest of their client at all times. The SEC provides additional guidance for each fiduciary duty specifically. The duty of care requires that an investment advisor provide investment advice in the client’s best interest, in consideration of the client’s financial goals. It also requires that a financial advisor provide advice and oversight to the client over the course of the relationship. The duty of loyalty requires an investment advisor to disclose any conflicts of interest that might affect his or her impartiality. It also means that the financial advisor is prohibited from subordinating his or her client’s interests to their own. The Suitability Rule Broker-dealers in the past were subject to less demanding obligations.  The Financial Industry Regulatory Authority (FINRA) regulates broker-dealers in the United States. FINRA previously imposed a suitability obligation on broker-dealers that only required them to make recommendations that were “suitable” for their clients.  Under the suitability rule, a broker-dealer could recommend an investment only if it was suitable for the client in terms of the client’s financial objectives, needs, and risk profile. Broker-dealers did not owe a duty of loyalty to their clients and did not have to disclose conflicts of interest.  Recently, however, FINRA amended its suitability rule. Regulation Best Interest FINRA recently amended its suitability rule to conform with SEC Regulation Best Interest (Reg. BI), making it clear that stockbrokers now uniformly owe certain heightened duties when making recommendations to retail customers.  As with fiduciary duties, under Reg. BI, all broker-dealers and their stockbrokers now owe the following duties:  Disclosure,  Care,  Conflicts, and  Compliance.  However, it’s important to remember that they owe these duties only when they make recommendations regarding a securities transaction or investment strategy involving securities to a retail customer.  While these changes are still new, one thing is certain—the Reg. BI standard is definitely a heightened standard compared with the previous suitability standard.  Forms of Financial Advisor Malpractice Investors usually hire financial advisors because they do not have experience in investing. With this lack of experience, how can an investor know when a financial advisor is committing malpractice? There are several ways financial advisors can commit financial malpractice. Lack of Diversity Financial advisors have a duty to ensure your investment portfolio is properly diversified to include a variety of investment assets. That may include a mixture of stocks, bonds, or mutual funds in multiple different sectors.  A portfolio that lacks diversification is likely to result in significant losses to the client in the event of a market downturn in a specific sector. If you believe your financial advisor failed to properly diversify your portfolio, contact an investment loss recovery attorney today. The attorneys at The Law Offices of Robert Wayne Pearce, P.A., have significant experience handling these types of cases and will ensure the financial advisor responsible for your losses is held accountable.  Your Investments Are Unsuitable Every investor is unique. That means financial advisors must consider the specific goals and needs of each individual client before recommending investments. A financial advisor must consider a client’s risk tolerance when recommending investments. Risk tolerance refers to an investor’s willingness to endure losses in the financial market. For an aggressive investor, a financial advisor might recommend a risky investment that has a better possibility of high returns. The same recommendation would be unsuitable for an investor with a low risk tolerance. If your financial advisor recommended investments that you believe are unsuitable, contact the Law Offices of Robert Wayne Pearce to have your case reviewed by an experienced investment losses attorney. Your Investment Advisor Is Excessively Trading Excessive trading, sometimes called churning, occurs when a financial advisor buys and sells stocks excessively with the goal of generating commission fees. Churning is prohibited by the SEC. Investors should frequently review their account statements to ensure that the number of trades in their account does not increase drastically. If your financial advisor has been excessively trading in your investment account, reach out to an attorney as soon as possible to prevent further losses.  Financial Advisor Negligence In some cases, your financial advisor may seem like he or she is doing nothing at all. The financial advisor could be focused on other clients or on personal matters. Regardless of the reason, this behavior is not appropriate. A financial advisor may be guilty of malpractice for failing to give the appropriate amount of attention to a client.  Client Testimonials The Law Offices of Robert Wayne Pearce, P.A., has been representing investors in disputes against...

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What To Do if You Believe Your Financial Advisor is Stealing Your Money (Step by Step)

Financial advisors are highly trusted professionals who help make decisions that impact your economic future. When that trust is broken through a bad or negligent act, the investor suffers and the financial advisor must be held accountable. If you believe your financial advisor stole your money, there are several options for you to recover.  If you have lost money due to financial advisor fraud or negligence, we invite you to reach out or call 561-338-0037. The Fiduciary Duty All financial advisors are held to a standard of care when dealing with investors. Registered financial advisors have a higher fiduciary duty to their clients under the Investment Advisers Act of 1940. This is the highest legal standard of care and requires financial advisors to act in the best interest of their clients, make suitable investments, and disclose relevant information to you.  Knowing whether your financial advisor is registered with the U.S. Securities and Exchange Commission (SEC) or a state securities regulator is important because if the advisor breaches the fiduciary duty, you can bring a claim against the financial advisor through the Financial Industry Regulatory Authority (FINRA). FINRA is the governing organization that creates and enforces rules for advisors and their firms and assists in resolving disputes between advisors and investors.  Do You Have a Claim? If your financial advisor outright stole money from your account, this is theft. These cases involve an intentional act by your financial advisor, such as transferring money out of your account. However, your financial advisor could also be stealing from you if their actions or failure to act causes you financial loss.   Losing money through an investment is not enough to bring a claim against your financial advisor. Remember, there is no guarantee of return when investing. Even if your financial advisor made the recommendation, under federal securities law and FINRA regulations, you cannot hold your advisor liable simply because they lost you money. You need a viable cause of action, such as a breach of fiduciary duty, negligence, or malpractice. Types of Claims Against Your Financial Advisor  Understanding securities law and FINRA regulations is crucial to knowing whether you have a valid claim against your financial advisor. The investment loss recovery attorneys at The Law Offices of Robert Wayne Pearce P.A. have over 40 years of experience in securities and investment law. They have helped countless investors recover their financial losses caused by bad or negligent acts by their financial advisor. The Law Offices of Robert Wayne Pearce P.A. have handled hundreds of cases involving many types of misconduct by financial advisors. Negligence In a negligence claim, you do not need to show that the financial advisor intentionally acted in a harmful way, but rather that the advisor failed to do something they had an obligation to do and caused economic loss. For example, your advisor may have made an unsuitable investment by failing to take into consideration your risk tolerance. If you lost money based on the recommended investment, it may be appropriate to file a claim for negligence against your financial advisor.  Breach of Fiduciary Duty A financial advisor who breaches his fiduciary duty has failed to meet the required standard of care. You may have a valid claim for breach of fiduciary duty if your advisor failed to execute your stated objectives or did not disclose information about a product. Other examples of breaching the fiduciary duty include: Unauthorized trading, Unsuitable investments,  Undiversified portfolio, and  Account churning.  In each of these instances, the financial advisor did not act in your best interest.  Failure to Supervise A brokerage firm is responsible for supervising the actions of its financial advisors and any other employees. If the firm fails to do this, it can be held liable for your financial losses.  What You Can Do There are several stages of resolution to recover your financial losses. Depending on the facts of your case, you may be able to resolve it and recover without any formal proceedings, or you may have to litigate. The attorneys at The Law Offices of Robert Wayne Pearce P.A. have helped investors in all stages and have successfully recovered over $140 million in losses for our clients.  Review Customer Agreement If you believe your financial advisor stole money from you, either directly or indirectly through losses in your account, you should first review your customer agreement. Understand what sort of authority you gave your financial advisor and if there is a mandatory arbitration clause. This clause is common in most customer agreements with brokerage firms. These clauses often state that you waive your right to file a lawsuit against your advisor and agree to engage in a FINRA arbitration proceeding instead.  Informal Dispute Resolution Claims against financial advisors are incredibly complex legal matters. There are informal options available, however. Even at this stage you should contact an investor loss recovery attorney for assistance. FINRA, which regulates the investment industry, instructs investors to first pursue informal dispute resolutions before filling a claim against their financial advisor.  Depending on the severity of the financial advisor’s misconduct, you may be able to resolve the matter directly with your advisor or the firm’s compliance department. If this is not suitable or you fail to come to a resolution, the next stage is participating in voluntary, non-binding mediation.  FINRA Mediation Mediation is a voluntary process that involves a neutral third party who assists in reaching a mutually agreeable solution. FINRA offers a forum for advisors and investors to mediate. This option is faster and less expensive than arbitration and litigation. Four out of five cases mediated by FINRA are resolved. If you fail to reach a satisfactory solution through mediation, you still have the right to arbitrate or litigate.   FINRA Arbitration Arbitration is more like a traditional legal proceeding in that an impartial party or panel hears arguments from both sides, analyzes the facts and evidence, and makes a final, binding decision. If you choose arbitration or are required to arbitrate under your customer agreement,...

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How to Sue a Financial Advisor Over Investment Losses

If you have lost a significant amount of money in your investment portfolios you may be asking yourself can you sue your financial advisor to help recover your losses. Can I Sue My Financial Advisor? Yes, you can sue your financial advisor. If you lost money on investments due to either a financial advisor’s advice or their failure to comply with FINRA’s rules & regulations, you have the right to file an arbitration claim to seek financial compensation. Investment Losses? Let’s talk. or, give us a ring at 561-338-0037. People hire financial advisors and brokers to grow and protect their money. Financial advisors have advanced education and training, which should provide their clients with valuable insight and accurate financial advice. Individual investors expect that their advisors will not defraud or harm them in any other way. Market volatility is difficult to predict with any certainty. Markets dip and rebound over time. A financial advisor must guide you through those difficult times and offer you sound investment advice to minimize or avoid losses.  Some investments are riskier than others. Brokers and financial advisors need to understand their clients’ risk tolerance, as well as their clients’ investment needs. Losses could ruin years of hard work and financial planning.  Market volatility is one thing—negligence, deception, and fraud are something else entirely. Therefore, you should review your portfolio closely to see if you are a victim of misconduct.

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J.P. Morgan Sued for Edward Turley and Steven Foote’s Alleged Margin Account Misconduct

J.P. Morgan Securities, LLC (“J.P. Morgan”) employed San Francisco Financial Advisor Edward Turley (“Mr. Turley”) and his former New York City partner, Steven Foote (“Mr. Foote”), and is being sued for their alleged stockbroker fraud and stockbroker misconduct involving a highly speculative trading investment strategy in highly leveraged margin accounts1. We represent a family (the “Claimants”) in the Southwest who built a successful manufacturing business and entrusted their savings to J.P. Morgan and its two financial advisors to manage by investing in “solid companies” and in a “careful” manner. At the outset, it is important for our readers to know that our clients’ allegations have not yet been proven. We are providing information about our clients’ allegations and seeking information from other investors who did business with J.P. Morgan, Mr. Turley, and/or Mr. Foote and had similar investments, a similar investment strategy, and a similar bad experience to help us win our clients’ case.

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Securities-Backed Lines of Credit can be More Dangerous Than Margin Accounts!

Securities-Backed Lines of Credit Can Be More Dangerous Than Margin Accounts! Many investors have heard of margin accounts and the horror stories of others who invested on margin and suffered substantial losses. But few investors understand that securities-backed lines of credit (SBL) accounts, which have been aggressively promoted by brokerage firms in the last decade, are just as dangerous as margin accounts. This is largely due to the fact that the equity and bond markets have been on an upward trend since 2009 and few investors (unless you are a Puerto Rico investor) have experienced market slides resulting margin calls due to the insufficient amount of collateral in the SBL accounts.

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Investors With “Blown-Out” Securities-Backed Credit Line and Margin Accounts: How do You Recover Your Investment Losses?

If you are reading this article, we are guessing you had a bad experience recently in either a securities-backed line of credit (“SBL”) or margin account that suffered margin calls and was liquidated without notice, causing you to realize losses. Ordinarily, investors with margin calls receive 3 to 5 days to meet them; and if that happened, the value of the securities in your account might have increased within that period and the firm might have erased the margin call and might not have liquidated your account. If you are an investor who has experienced margin calls in the past, and that is your only complaint then, read no further because when you signed the account agreement with the brokerage firm you chose to do business with, you probably gave it the right to liquidate all of the securities in your account at any time without notice. On the other hand, if you are an investor with little experience or one with a modest financial condition who was talked into opening a securities-backed line of credit account without being advised of the true nature, mechanics, and/or risks of opening such an account, then you should call us now! Alternatively, if you are an investor who needed to withdraw money for a house or to pay for your taxes or child’s education but was talked into holding a risky or concentrated portfolio of stocks and/or junk bonds in a pledged collateral account for a credit-line or a margin account, then we can probably help you recover your investment losses as well. The key to a successful recovery of your investment loss is not to focus on the brokerage firm’s liquidation of the securities in your account without notice. Instead, the focus on your case should be on what you were told and whether the recommendation was suitable for you before you opened the account and suffered the liquidation.

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UBS Yield Enhanced Strategy Investors: How Do You Recover Your “UBS-YES” Investment Losses?

If you are reading this article, you probably invested in the UBS Yield Enhanced Strategy (“UBS-YES”) and were surprised to learn the UBS-YES program you invested in was not exactly a “market neutral” investment strategy during the recent COVID 19 market crash. Despite your UBS stockbroker’s representations about the UBS-YES managers ability to “manage risk” and “minimize losses” through its “iron condor” option strategy you still realized substantial losses. You are not alone because that is just what many other UBS-YES investors have told us about the pitch made to them to invest in the UBS-YES program and their recent experience.

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UBS Financial Services, Inc. Sued for Florida and Ohio Advisor’s Alleged Misconduct Involving a Credit-Line Investment Strategy

UBS Financial Services, Inc, (“UBS”) employed a financial advisor (the “FA”) who has offices in Bonita Springs, Florida and Sylvania, Ohio. UBS held out the FA and other UBS employees on his team as investment advisers, investment managers, financial advisers, and financial planners with special skills and expertise in the management of securities portfolios and financial, estate, retirement, and tax planning matters.

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Regulation Best Interest (Reg. BI): Better But Not the Best!

Finally, ten years after the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) was enacted to bring about sweeping changes to the securities industry, the best regulation the U.S. Securities & Exchange Commission (“SEC”) could pass, SEC Regulation Best Interest, is now the law governing broker-dealers giving investment advice to retail customers. Although the SEC had the authority to impose a uniform and expansive “Fiduciary Duty” standard throughout the country upon broker-dealers and investment advisors, it yielded to the stock brokerage industry demands and enacted Regulation Best Interest (“Reg. BI”), which is better than the Financial Industry Regulatory Authority (“FINRA”) “Suitability Rule,” but not the best that it could have been done to protect investors. Last month FINRA amended its Suitability Rule to conform with SEC Reg. BI and made it clear that stockbrokers now uniformly have duties related to disclosure, care, conflicts and compliance, which are equivalent to the common law “fiduciary duty” standard when making recommendations to retail customers. See, FINRA Regulatory Notice 20-18. 1

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