Breach of Fiduciary Duty
The law in most states, including California, imposes a fiduciary duty on financial advisers to act in the best interests of their client. A leading case on this subject has recognized that the duties of a broker are fiduciary in nature and "must be exercised with the utmost good faith and integrity."
In securities cases, the precise scope or extent of a financial adviser's fiduciary duties will usually depend upon the facts and circumstances of each individual case. However, some key duties that apply to all financial advisers include the following:
- The duty to only recommend securities that the adviser has reasonable grounds to believe are suitable for the customer.
- The duty to adequately inform the customer about the risks involved in buying or selling a particular security.
- The duty to avoid self-dealing and to disclose any personal interest the broker may have in any recommended investment.
- The duty not to misrepresent or omit any material facts.
- The duty to purchase or sell securities only after receiving prior authorization from the customer.
A financial adviser's fiduciary duties are even greater in the case of trusts, charitable foundations or discretionary accounts. Investment advisers who have discretionary authority over a customer's account and can make buy and sell decisions independently without getting the customer's approval have an even more stringent fiduciary duty.