Investment Advisors and the Fiduciary Duties They Owe To Their Clients

A fiduciary duty imposes one of the highest duties known under the law. Many professionals owe a fiduciary duty to their clients. For example, attorneys owe fiduciary duties to the clients they represent. Doctors owe fiduciary duties to the patients they oversee and care for. Trustees owe fiduciary duties to beneficiaries. Real estate agents owe fiduciary duties to their clients. And, of importance, investment advisors owe fiduciary duties to the individuals they make investment decisions to. 

The concept of a “fiduciary” has been around for thousands of years, as far as the Roman Empire and the concept is found and explored in many religious texts as well. In order to have a well-functioning society, it has been determined that certain professionals ought to be held to a high fiduciary standard when rendering services or advice to people who rely on the professionals for advice or direction. A breach of fiduciary duty occurs when a fiduciary fails to responsibly act in the best interests of a client. Fiduciary duties are established both by common law and codified through statutes, rules and regulations imposed by legislative bodies. 

In the context of investment advisors, brokers, and other financial professionals, the law imposes a high fiduciary standard on these investment professionals to act in the best interest of their clients and requires financial professionals to put the interests of their clients ahead of their own interests, financial or otherwise. A breach of a financial professional’s fiduciary duty occurs when an investment advisor or financial advisor prioritizes their own interests, or the interests of a third party, over those of their client. A breach of fiduciary duty can manifest itself in several ways, including failing to disclose conflicts of interest, providing misleading or incomplete information, engaging in fraudulent or illegal activities, or otherwise acting in a negligent or reckless manner with a client’s investments.

What are some examples of breach of fiduciary duties by investment advisors?

Some examples of breach of fiduciary duty in investment advisory services include:

• Conflict of Interest. Advising clients to make investments that generate higher fees or commissions for the advisor, without disclosing this conflict of interest and without care for the investor’s best interests If a financial professional puts his or her own financial interest in generating commissions and fees above the best interest of the client, a breach of their fiduciary duty has occurred.
• Misrepresentation/Omission. Providing false or misleading information about investment opportunities, risks, or performance; or omitting important information that would be helpful for the client to know before making an investment decision.
• Unauthorized Trading. Making a trade, or trades, without the client’s consent, or exceeding the scope of authority agreed upon with the client.
• Churning. Excessively trading a client’s securities to generate commissions for the advisor, without regard for the client’s investment goals or risk tolerance.
• Failure to Diversify. Failing to adequately diversify a client’s investment portfolio to minimize risk and failing to position the client’s investments in a way that serves the client’s best interests.
• Failure to Monitor. Neglecting to professionally monitor a client’s investments, or adjust their investment strategy, in response to changing market conditions or the client’s changing financial circumstances.

The question to ask yourself is: did your financial professional put his or her own financial interests above your interests? As an investor, you have rights and duties owed to you by your investment advisor, and you may be able to pursue legal remedies against them for damages if they fail to fulfill their duties. If you believe that an investment or financial advisor has breached their fiduciary duty, contact a qualified investment fraud attorney to review your account as soon as possible for legal guidance.