So you have a stockbroker who manages your investment account. He or she might’ve managed your portfolio for a long time, but, have they put your interests above theirs?
If the answer is no, you might have to take a close look at your broker’s actions. If you’re able to prove it, there’s a breach of fiduciary duty from your stockbroker.
Not sure what we’re talking about? Don’t worry. We’ve you covered.
We’ll tell you all about your stockbroker’s fiduciary duty and how a stock attorney can help you. Read on to learn more!
Breach of Fiduciary Duty: The Basics
Before we discuss how to identify a breach of your stockbroker’s duty, we’ll go over the basics.
A fiduciary is a person or organization appointed to act in the name of another person. They’ll manage the assets of the person who appoints them. An example of a fiduciary is a financial adviser, banker, money manager, attorney, stockbroker or investment adviser, among others.
A fiduciary relationship exists between the fiduciary and the person who appointed them. This person or organization owes a duty to their appointee. It’s what we call a fiduciary duty.
This responsibility is in the legal and ethical aspect. The fiduciary must always look out for the best interest of their appointee. This means that your stockbroker must manage your portfolio in your benefit, not for their own financial gains.
What Is a Stockbroker or Investment Adviser Fiduciary Duty?
A stockbroker’s duty comes from the Investment Advisers Act of 1940. This law says that your investment adviser has to be loyal to their client. Also, they must have a logical reason for their investment recommendations.
This means that your broker can’t place a trade because it pays them a higher commission. Their recommendations must follow your investment objectives. Also, the law requires investment advisers to conduct their client’s transactions in the best way possible.
You should be aware that your stockbroker can’t ask you to sign a liability waiver. If they do so, they’re violating the Investment Advisers Act. Because of their fiduciary duty, stockbrokers are held to the highest standard of care.
The trust their clients must place in them make stockbrokers held at this standard. Even when a client is a seasoned investor, they’re in a vulnerable position.
This places on the adviser all the responsibility of protecting the client’s assets. This responsibility means that the broker must act on behalf of the client as they would for themselves.
What Is the Fiduciary Duty Standard Your Stockbroker Must Follow?
Any stockbroker or registered investment adviser has to follow the fiduciary standard. He or she must fulfill their duties by providing investment advice using complete and accurate information. In other words, they can’t just tell you to buy or sell your investment because they think so.
This standard requires the stockbroker to trade under the best execution standard. Your broker must place trades trying their best combination of efficiency and execution. It doesn’t mean to time the market.
They should try to place trades that help you grow your portfolio without leaving you a hefty bill. Also, this standard asks your stockbroker to disclose any potential conflicts of interest.
What Constitutes a Breach of Fiduciary Duty?
A stockbroker or financial adviser breaches their fiduciary responsibility when they don’t protect their client’s interests. There are different ways they can breach it. Here are the most common fiduciary duty breaches by stockbrokers:
Not Disclosing Important Information About Your Investments
When you invest in a product, your stockbroker must tell you all the material information about it. Some brokers think only about the sell and they don’t disclose all the material risks. If they do this, they’re breaching their fiduciary responsibility.
You shouldn’t be placing a trade or investing without knowing the risks. Other investment advisers don’t tell the clients how much they’ve lost. Not disclosing this information falls into this type of breach as well.
Not Acting in Your Best Interest
Your stockbroker must always act in your best interest. The line becomes gray when your stockbroker might focus on the fees they charge you instead of your investments.
When a broker charges you more fees than usual or hidden fees, they’re breaching their fiduciary responsibility. Another example is when a broker places the same trades on their account before placing them on yours. This would also be a fiduciary duty breach.
No Strings Attached Negligence
You pay your stockbroker to offer you the best guidance for your investments. This means that if they don’t offer you competent advice, they’re breaching their duty. An example is when your broker pushes you to invest in an investment that doesn’t follow your investing objectives.
Acting Under Conflicts of Interests
A conflict of interest happens when a personal and professional duty clash. An example is when your stockbroker recommends an investment because they’re being paid for it. Yes, you read that right.
There are some stockbrokers who get money on the side for telling you to place a trade. This goes against the Investment Advisers Act, but it hasn’t stopped everyone from doing it. If you’re able to prove your stockbroker did this, you’ll have a fiduciary duty breach case against them.
Can a Reputable Stock Attorney Help You?
Yes, a reputable stock attorney can help you if there was a breach of fiduciary duty from your stockbroker. Remember that before consulting the attorney, you must look at your account statements to get an idea of how big the damages are. After looking at your records, you should ask yourself about the losses.
Can you spot a breach of fiduciary duty? How long ago did your stockbroker’s breach happen? Did they tell you about the trades they placed on your account?
These are some of the questions that can give you a better idea of where you stand. Knowing the answer to these questions will help you during your first consult.
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