" In matters of truth and justice, there is no difference between large and small problems, for issues concerning the treatment of people are all the same." - Albert Einstein

Breach of Fiduciary

A fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Essentially, a fiduciary owes the responsibilities of good faith and confidence to that other entity. Investment advisors who breach their fiduciary duty may be liable to their clients under U.S. securities laws and other international laws.

The following entities are subject to fiduciary duties when it comes to the field of Investment:

  • Brokers
  • Investment Advisors
Fiduciary Duties of Brokers:

When a broker recommends an investment to an investor, the broker has an obligation to:

  • Understand the risks, rewards, and strategy of the investment
  • Ascertain the client’s investment profile
  • Do due diligence on the investment suitability for the investors
  • Furnish all the data and other market factors supporting the recommendations
  • Not misrepresent or omit material information
  • Avoid conflict of interest

In our experience on cases of breach of fiduciary, we have seen the courts more stringent and emphasizing broker’s obligation when:

  • The investor is very young or old and has very little experience in investment and completely relies upon the expertise and knowledge of the broker in investments.
  • The broker and investor have a long-standing relationship and because of which the broker enjoys the strong trust of the investor.
  • The investor has given complete control over the account to the broker for all their investments.
Fiduciary Duties of Investment Advisors:

Investment advisors have fiduciary Duties not only during the recommendation of an investment product to a customer but also after the purchase of the product and as long as the investment is alive.

Investment advisors have an obligation under agency law to warn and advise investors as market conditions alter. An investment or strategy that might have been appropriate years earlier may no longer be appropriate for the investor due to modifications in the market or the economic conditions of the investor.

An investment advisor has the following obligations to fulfill.

  • Fully disclose all material facts and allow the investor to make an informed decision
  • Avoid and/or disclose any conflict of interest
  • Continuously monitor and advise the investor on the investments throughout its tenure

In our experience on cases of breach of fiduciary, we have seen the courts more stringent and emphasizing broker’s obligation when:

  • The investor is very young or old and has very little experience in investment and completely relies upon the expertise and knowledge of the broker in investments.
  • The broker and investor have a long-standing relationship and because of which the broker enjoys the strong trust of the investor.
  • The investor has given complete control over the account to the broker for all their investments.
Fiduciary Duties - Investment Companies and Public Companies:

Investment companies (including mutual funds), limited liability partnerships, and corporations are obliged to fiduciary duties to investors.

  • The board of directors in a company is responsible for the management of the business and they act in a supervisory role and delegate day-to-day management to officers of the corporation
  • Directors and officers are fiduciaries of the shareholders of the company
  • Hence the decisions made in a company must be focused on the best interest of the shareholders
  • If the company is a public company, meaning it is listed on any recognized public exchange, then the market regulator rules and the law of land provide additional regulation of the duties of corporate directors and officers

We at South Texas Securities Co. have experience representing our clients across the world for breaches of fiduciary duties by brokers, advisors, and companies.