Breach of Fiduciary Duty

A “fiduciary” may be defined as a person (or institution) that provides a service that requires expertise and is socially important.  The service(s) cannot be performed without the client’s entrustment of property or power or both.  The law recognizes that certain relationships require one party to place the other parties interests ahead of its own.  These relationships include those of an attorney-client and, under the Investment Advisers Act of 1940 (for example), an investment adviser and investor client.  Under the law, an “investment adviser” is someone who gives advice concerning the purchase and sale of securities.  In contrast, a broker-dealer historically effected transactions on behalf of investors and, therefore, was not considered to be advising clients in connection with the purchase and sale of securities.  Today, financial advisers who work at broker-dealers engage in identical practices as investment advisers.  Nevertheless, financial advisers (unlike investment advisers) may not be subject to a fiduciary standard in many states.

Fortunately, California law mandates that financial advisers are in fact fiduciaries, but the courts have developed a myriad of factors to consider in order to determine what the nature of the fiduciary relationship obligates the financial adviser to do.  Unlike investment advisers who must place their clients interests ahead of their own, financial advisers in California may not be subject to the same level of scrutiny.

Simply stated, a fiduciary is generally held to a high standard of ethics in order to ensure clients’ money is not mismanaged.  Breach of duty is not determined by the performance of investments.  Instead, actions of the fiduciary are scrutinized to ensure responsible investing practices were followed.  When determining if a financial advisers bears legal responsibility for a client’s loss, it must be determined if prudent advice was given, if the broker, in fact, was a fiduciary, and if actions taken were in the best interest of the client.

If you suspect that your financial adviser has violated fiduciary principles, please contact Wittenberg Law to discuss your legal rights and options.