Breach of Fiduciary Duty
State and federal laws require that investment advisers act in their clients’ best interests. Although they act as fiduciaries, some brokers fall short of the duties owed to their customers. Steve A. Buchwalter is an experienced securities fraud lawyer who advises and represents individuals throughout Los Angeles County and beyond who were burned by their brokers. You may have a legal claim against your financial adviser if you suspect a breach of fiduciary duty.Fiduciary Duty of Investment Advisers and Brokers
A fiduciary relationship arises when a person places his or her trust and confidence in another person or entity. In the investment arena, advisers and brokers can help customers (both institutions and individuals) make important financial decisions. An investment adviser is a person or company that advises clients about securities for a fee. A broker, or a broker-dealer, acts as an intermediary who helps customers with potential investments brokered or sold by the broker-dealer. The Financial Industry Regulatory Authority (FINRA) defines a broker-dealer as a person or company that buys and sells securities on behalf of its customers, its own account, or both. A person who works for a broker-dealer is usually referred to as a broker, but he or she is also a “registered representative” of the broker-dealer.
The Investment Advisers Act of 1940 regulates this profession. Federal and state courts as well as the Securities and Exchange Commission have held that investment advisers have a fiduciary obligation to their customers, which means they must place their own interests below those of their clients. For instance, they must provide advice that is based on complete and accurate information, and that suits their customer’s financial needs and goals. They must also disclose all material facts and avoid any potential conflicts of interest.
Under federal law, brokers have a suitability obligation to their customers. A broker only needs to provide recommendations that are suitable based on the customer’s objectives, financial need, age, and various other circumstances. In other words, his or her recommendations should be consistent with a client’s best interests. Account churning, which is when a broker trades excessively in order to generate commissions, is one example of when a financial professional may violate the suitability standard. Some states, such as California, impose a fiduciary duty on brokers based on the agency relationship they have with their customers.California and a Broker’s Fiduciary Duty
California recognizes a fiduciary relationship between a broker and his or her customer. Brokers act as their customers’ agents. Since an agent is generally a fiduciary to his or her principal, brokers are considered fiduciaries in California.
A broker must exercise his or her fiduciary duty with the utmost good faith, integrity, reasonable care, and loyalty. A broker cannot simply carry out a customer’s objectives but must determine the customer’s actual financial needs and circumstances when making a recommendation, particularly if the customer has invariably relied on the broker’s advice in the past. A broker’s fiduciary obligations include:
- A duty to fully and fairly disclose all material facts. The California Code also makes it unlawful for anyone to omit, or make an untrue statement about, a material fact in connection with the sale or offer of a security;
- A duty to ensure the customer understands an investment’s risks in light of his or her financial interests; and
- A duty to keep the customer informed of each completed transaction.
The scope of the duty will depend on the facts and circumstances of each case. This includes the customer’s experience in investment matters, his or her ability to evaluate the broker’s recommendations, and whether the account is discretionary or nondiscretionary.Protect Yourself against Investment Fraud with the Help of a Skilled Ventura Lawyer
Investment fraud attorney Steve A. Buchwalter has more than 20 years of experience representing clients in Ventura County and the surrounding regions. He has helped investors pursue claims against brokers and other financial professionals who commit fraud or negligence, or otherwise breach their fiduciary duty. As a former stockbroker, Mr. Buchwalter offers a unique insight and perspective into these types of disputes. He serves clients in Beverly Hills, Los Angeles, Santa Barbara, and Newport Beach, among other communities throughout Southern California. For a consultation, call us today at (818) 501-8987 or fill out our online form.