Fiduciary Duty: Protecting Yourself from Financial Loss through Broker Negligence and Broker Malpractice
Investing with a brokerage firm can provide you with the expertise need to protect and grow your investments. Investors are placing significant trust in someone hired to protect and manage their assets and financial future. Brokers are legally required to put their clients’ interests ahead of their own. They cannot encourage or promote products that are not in each client’s best interest. Fiduciary duty protects investors from loss through broker negligence, including accidental mismanagement, and broker fraud.
Examples of brokerage fiduciary duty include:
Duty of Good faith and Dealing: as noted above, brokers must always act in the client’s best interest.
Duty of Loyalty: brokers and brokerage firms cannot use their position of trust to further their own interests.
Duty of Disclosure: brokers must provide clients with the details of all investments including any potential risks.
Certainly, most brokerage firms take great care to provide fiduciary duty to their clients. Unfortunately, mistakes can happen in the form of broker negligence, even broker fraud, placing clients at risk for financial loss. Certain requirements must be met in order to prove fiduciary duty has been breached.
The advisor was professionally required to provide fiduciary duty.
The duty was breached either on purpose (such as churning stock) or through broker negligence (including actions the broker should or should not have taken that put the client at risk). It’s important to note that when it comes to negligence, broker intent is not relevant if the client faced a loss to due accidental mismanagement of funds.
Finally, in order to provide a breach of fiduciary duty occurred, the damages must be tangible. This doesn’t necessarily mean the client lost invested money. Damages can include the loss of potential income due to advisor error or negligence.
For more information on fiduciary duty, visit our broker securities blog for one of our previous posts.