Breach of Fiduciary Duty

Investors May be Able to Recover Losses Arising from a Breach of Fiduciary Duty

In many instances, stockbrokers and financial advisors owe a fiduciary duty to their clients – meaning that they have to act with the client’s best interest in mind, need to be free of conflicts of interest, and have to act with due care with regard to the handling of their accounts. This is the same standard of care that similar professionals are held to, such as doctors and lawyers.

In the securities or investment management industry, when a stockbroker or financial advisor that owes their client a fiduciary duty makes an investment recommendation to a client or otherwise provides investment advice to the client, specific fiduciary duties attach which require them to:

  • Understand the risks and rewards of the investment as well as the investment strategy before recommending the product to the client;
  • Make recommendations that are in the best interest of the client, based upon the customer’s investment objectives, financial situation and needs, liquidity needs, investment time horizon and risk tolerance;
  • Provide the client with information necessary to make an informed decision regarding the investment advice or recommendation;
  • Not make any misrepresentations or omissions regarding the product being recommended;
  • Avoid conflicts of interest that benefit the financial advisor to the detriment of the client; and
  • Act with due care with regard to the investment advice, or the handling of the client’s accounts.

Each of these fiduciary duties is required of the financial advisor at the time he recommends a transaction to a client, or otherwise provides them with investment advice.

Unfortunately for investors, currently not all stockbrokers owe their customers a fiduciary duty. Generally, a non-discretionary relationship between a stockbroker and brokerage firm customer does not create a duty to continually provide the customer with information about recommended transactions. However, ongoing fiduciary duties have been imposed on stockbrokers in situations where:

  • The customer is very young or very old, has never used a stockbroker before or has very limited investment experience and completely relies on the experience and knowledge of the stockbroker;
  • The stockbroker and customer have been long-time friends and a relationship in which the customer relies upon his trust in the stockbroker to recommend sound products;
  • The stockbroker assumes actual control over the account.

In today’s investment world where most stockbrokers market themselves as “trusted financial planners”, there is great confusion over what duties are owed by stockbrokers and financial advisors. Although the law on fiduciary duty may vary from state-to-state, generally speaking stockbrokers and financial advisors handling retirement accounts (such as IRAs, 401(k), 403(b), and other defined benefit plans) are held to a fiduciary standard. Investment advisers – who are regulated under the Investment Advisers Act of 1940 – also owe their clients a fiduciary duty.

But there is sometimes a difference between a stockbroker and investment advisor. An investment advisor generally provides investment advice and makes discretionary trades in a client’s account, has an ongoing fiduciary duty to his or her clients. Stockbrokers, on the other hand, only handle transactions for brokerage firm customers, and must ensure that any investment recommendation is only “suitable” for the customer – meaning that the stockbroker can still put his or her interests before the customer as long as the transaction is “suitable”.

Stockbrokers and financial advisors that owe fiduciary duties generally have an obligation to monitor a client’s portfolio, and have an obligation to warn and advise customers as market conditions change or fluctuate because an investment or investment strategy that may have been in the client’s best interests years ago may no longer be appropriate in a changing market. Stockbrokers and financial advisors that owe fiduciary duties also have duty to fully disclose any conflicts of interest, to refrain from self-dealing and to put the customers interest above his own. In essence, investment advisors act as independent investment appraisers and portfolio managers for their customers.

If an investor suffers a loss with a stockbroker or financial advisor, chances are that a breach of fiduciary duty may have caused the loss. It is important for investors who believe that they suffered losses as a result of a breach of fiduciary duty contact a securities lawyer to evaluate their case.


Schedule a Free Consultation with a Securities Lawyer to Evaluate Your Breach of Fiduciary Duty Claim

If a stockbroker, financial advisor, or their brokerage firm has breached the fiduciary duty that they owed you, they can be held liable for the losses you suffered as a result of the breach of those duties.  As a result, investors who lost money as a result of a breach of fiduciary duty may be able to recover their investment losses through FINRA arbitration.

If you are have suffered losses from a breach of fiduciary duty by your stockbroker, financial advisor, or brokerage firm, you may be able to recover your losses though FINRA arbitration. Please call Kons Law Offices at (312) 757-2272 for a FREE, NO OBLIGATION consultation to discuss your investment loss recovery options.

Kons Law Offices represents investors nationwide in securities arbitration and litigation matters. To learn more about the Firm’s securities litigation and FINRA arbitration practice, please visit