Breach of fiduciary duty is one of the most common investor claims against financial advisors (stock brokers) and brokerage firms. At the same time, breach of fiduciary duty claims are also some of the most commonly misunderstood claims, which is partially due to inconsistencies in the way different courts treat different types of investment professionals.
As a general rule, financial advisors and brokerage firms always have a duty to deal in good faith with their customers. Good faith basically means that financial advisors must be competent, honest and fair when providing investment advice.
What is a fiduciary duty?
Depending upon the jurisdiction (state) and the nature of the financial advisor-client relationship, the financial advisor may also have a heightened duty known as a "fiduciary duty." This can be particularly true where the client is unsophisticated and wholly trusts and relies on the investment advice of the financial advisor. A fiduciary duty also exists where a financial advisor manages and controls a client's account.
These heightened fiduciary duties may, for example, include:
The duty to place the client's interest before the financial advisor or brokerage firm's interests
The duty to monitor the client's account and make recommendations on an ongoing basis as needed
The duty to disclose potential conflicts
How can a financial advisory breach their fiduciary duties?
Financial advisors can breach their fiduciary duty to clients in a number of ways. Typically, the financial advisor places his/her interest ahead of the client's interests. Some common examples include:
Negligently recommending unsuitable investments or investment strategies
Recommending an excessive number of transactions in order to increase commissions for the financial advisor's gain
Failing to disclose a conflict of interest, such as a financial advisor's personal interest or stake in a security
Buying or selling securities from the client's account to the financial advisor's personal account
At Lufrano Law, LLC, we are experienced in bringing breach of fiduciary duty claims against financial advisors and brokerage firms. Please contact us today for a free, no-commitment consultation.