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Breach of Fiduciary Duty Lawyers

Investors place significant trust in the professionals who manage their financial affairs, expecting these advisors to uphold a fiduciary duty. This duty, essential in relationships between financial service firms (agents) and their customers (principals), mandates that advisors act primarily in their clients’ best interests. The term “fiduciary duty,” frequently addressed by experienced attorneys, encompasses the ethical and legal obligations required of certain professionals when serving their clients.

Fiduciaries, such as attorneys, real estate agents, and trustees, are legally obligated to prioritize their clients’ interests above their own, avoiding self-dealing or any actions that could compromise their clients’ trust. This stringent standard ensures that professionals adhere to the highest levels of integrity and transparency, safeguarding the financial interests of their clients. Investors seeking assurance that their financial advisors are fulfilling these obligations can consult with attorneys who are well-versed in fiduciary duty, to ensure their investments are managed with the utmost care and professionalism.

Investment advisers owe their clients a fiduciary duty which includes the standard duties of care, loyalty, good faith, and disclosure. This means that an investment adviser must:

Courts, including those in California have reiterated that the fiduciary nature of the relationship between a stockbroker and customer “imposes on the former the duty to act in the highest good faith toward the customer.”

A fiduciary duty also requires a brokerage firm to comply with industry standards, rules, and regulations. The duty also requires brokerage firms to supervise and monitor the activities of the firm’s employees, perform pre-sale due diligence and after-sale monitoring of investments. The failure to meet the firm’s obligations can be a breach of the firm’s fiduciary duty and result in liability.

Recently, the Securities and Exchange Commission’s Regulation Best Interest known as “Reg BI” imposed a heightened best interest standard on broker-dealers when recommending securities transactions or investment strategies. Broker-dealers were required to begin complying with the regulation on June 30, 2020.

Regulation Best Interest—or Reg. BI—imposes a new standard of conduct specifically for broker-dealers that substantially enhances their obligations beyond the current “suitability” requirements. The Regulation BI standard can be viewed as having two components. First, it establishes a general obligation that draws from key fiduciary principles, requiring broker-dealers to act in the best interest of their retail customers and not place their own interest ahead of the retail customer’s interest. Second, it includes specific requirements to address aspects of the broker-dealer relationship where our experience indicated that focused attention was appropriate. Regulation BI is satisfied only if the broker-dealer complies with four specified component obligations: Disclosure, Care, Conflict of Interest, and Compliance. Each of these obligations includes a number of prescriptive requirements, all of which must be satisfied to comply with the rule.

Wall Street firms may also have statutory fiduciary duties. The most common is codified in The Employee Retirement Income Security Act (ERISA) contains four requirements for 401(k) plan fiduciaries often referred to as the obligation to operate plans for the “exclusive benefit” of the participants. These requirements are the duty of loyalty; the duty of prudence, the duty to diversify investments; and the duty to follow plan documents.

These are some examples of ways a financial adviser can comply with the fiduciary duty. Behavior that places some other interest above the client’s interest may be considered a breach of the fiduciary duty.