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:

  1. The duty to only recommend securities that the adviser has reasonable grounds to believe are suitable for the customer.
  2. The duty to adequately inform the customer about the risks involved in buying or selling a particular security.
  3. The duty to avoid self-dealing and to disclose any personal interest the broker may have in any recommended investment.
  4. The duty not to misrepresent or omit any material facts.
  5. 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.