How a Breach of Fiduciary Duty Leads to Investment Losses

Shepherd Smith Edwards and Kantas (SSEK Law Firm at represent investors who have suffered losses because their broker or investment advisers breached their fiduciary duty. Securities laws now require that stockbrokers and investment advisers act in their customers’ best interests.

Unfortunately, this isn’t always what happens. Along with unsuitability, breach of fiduciary duty is one of the most common reasons investors cite as grounds for recovering damages.

For over 30 years, our stock broker fraud attorneys have represented investors in Financial Industry Regulatory Authority (FINRA) arbitration, mediation, and litigation. We’ve worked with thousands of clients and recovered millions on their behalf for breach of fiduciary duty cases. Call SSEK Law Firm at (800) 259-9010 today.

What is Fiduciary Duty?

Under the law, a "fiduciary" is someone who has the legal duty to act in the best interest of another. A "fiduciary duty" is the affirmative duty of good faith that compels the fiduciary to place the client's interests before their own. The fiduciary who owes that obligation is required to take the utmost care in ensuring no conflicts of interest could impact that obligation.

Examples of Fiduciary Duties That Financial Advisers Have Toward Their Customers
  • They must thoroughly understand an investment/ investing strategy, including any risks or rewards, before making a recommendation to an investor.
  • It is important that they conduct the proper due diligence into any financial product/investing opportunity they are recommending to ensure it is safe and legitimate.
  • Brokers and investment advisers must ensure that any recommendation is suitable for an investor according to the latter’s investing profile, financial goals, risk tolerance level, and other factors.
  • They must provide customers with the information they need to thoroughly understand an investment recommendation. This includes not making misrepresentations and omissions when explaining these recommendations and apprising an investor of the risks.
  • They must only recommend investment products that are in a customer’s best interests.

Until recently, only registered investment advisers were required under the Investment Advisers Act of 1940 to make recommendations that were both suitable for an investor and in their best interests. Meanwhile, under FINRA Rule 2111, brokers had to abide by a suitability standard, but that did not necessarily mean that an investment recommendation had to be in a customer’s best interests.

In 2019, The Securities and Exchange Commission (SEC) enacted Regulation Best Interest. This rule also now requires brokers to fulfill that best interest requirement when recommending an investment. When a broker agrees to execute an order, the broker and firm have a fiduciary duty of "best execution" to not place the firm's interest before the client’s and to execute the order at the best price available in the marketplace.

When brokers agree to manage clients' assets and/or obtain permission to place orders on their behalf, the financial professionals take on additional fiduciary duties to these clients.

Examples of Breach of Fiduciary Duty by a Financial Advisor Can Include
  • Failure to disclose any conflicts of interest.
  • Failure to conduct the proper due diligence.
  • Failure to act in a customer’s best interests.
  • Misappropriating an investor’s money.
  • Making unauthorized transactions without a customer’s permission or knowledge.
When Failure to Conduct Due Diligence Becomes a Breach of Fiduciary Duty

Unfortunately, some brokers and investment advisers don’t perform enough due diligence before recommending an investment to a customer. This can prevent the financial professional from knowing all the risks involved or determining when what looks like a lucrative investment opportunity is, in fact, a financial scam.

Often, the lure of high commissions can cause a financial adviser to fail to do a thorough enough job of vetting a financial product or its company. When this happens, it is the investors that can suffer losses.

How Can You Prove That You Were the Victim of Breach of Fiduciary Duty?

A financial adviser is in breach of their fiduciary duty if they’ve violated their professional obligation to you and this caused you investment losses or and other damages. However, this can be tough to prove, which is why you want to work with seasoned breach of fiduciary investment fraud attorneys who know how to build a solid case on your behalf by:

  • Proving that your financial adviser owed you a fiduciary obligation.
  • Providing evidence to show that the fiduciary duty was violated.
  • Showing how this breach of fiduciary duty caused you real investment losses.
Work With Stock Broker Fraud Attorneys Experienced in Breach of Fiduciary Cases

SSEK Law Firm has gone up against the largest firms on Wall Street to secure settlements for investors. To schedule your free consultation with one of our knowledgeable stock broker fraud attorneys, call (800) 259-9010 today or contact us online.

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