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Breach of Fiduciary Duty

From Jenice's interview for the Masters of the Courtroom series on
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A breach of fiduciary duty occurs when your broker does not use a high degree of care in overseeing your investment portfolio. The fiduciary duty is created by the trust you put in your broker once the broker/client relationship is formed. Other types of fiduciary relationships include attorney/client and trustee/beneficiary. Due to the nature of your special relationship, your broker has the fiduciary obligation to put your best interests first, as their client. If you notice that your broker disregarded your financial goals or put their interests first, your broker may have breached their fiduciary duty. A New York securities breach of fiduciary duty law firm like Malecki Law can review your registered investment advisor’s or broker’s conduct around your portfolio at no cost.

There are multiple fiduciary duties owed to you. A fiduciary has a duty of loyalty to a customer and must act in the client’s best interest, putting the client’s interest ahead of his or her own interest. Therefore, your broker must not engage in self-dealing. Further, a fiduciary has the duty to disclose any relevant information to your investments and overall portfolio.

Your broker can breach their fiduciary duty by engaging in misconduct related to your investments, including securities fraud or unauthorized trading. If your broker recommended unsuitable investments to you, they may have also breached their fiduciary duty owed to you. A New York securities breach of fiduciary duty attorney at Malecki Law can review your situation in a free consultation. An example of a breach of fiduciary duty is recommending junk bonds as safe, or an annuity in an Individual Retirement Account (IRA).

Your broker is allowed to use investment analysis tools to help make decisions. For example, your broker may utilize a tool that assists in retirement planning. This tool would likely take various factors into account, for example, your expected retirement age and your current 401(k) or IRA account values. However, such investment analysis tools are subject to requirements your broker must comply with, including descriptions of the tool’s criteria and explanations as to how your results may change. Therefore, your broker cannot make predictions regarding your investments. If your broker expressed guarantees regarding your investments, your broker likely breached their fiduciary duty. A securities breach of fiduciary duty lawyer in New York at Malecki Law can review your portfolio at no cost.

The Distinction Between Stockbrokers and Investment Advisors

Stockbrokers are agents of broker-dealers and investment advisor representatives (IARs) are agents of registered investment advisors (RIAs). Both brokers and IARs might be referred to as “financial advisors,” although it is important to note that brokers can be held to a different standard than IARs. Brokers are registered with the Financial Industry Regulatory Authority (FINRA); thus, they are subject to FINRA’s “Suitability” rule. If it seems as though your financial advisor did not act in your best interest, he/she potentially breached his/her fiduciary duty owed to you. A New York securities breach of fiduciary duty law firm like Malecki Law will assess your potential case with the experience it takes to understand your case. The Suitability rule requires brokers to only recommend investments that are suitable for their clients. Whereas IARs are either registered with the Securities and Exchange Commission (SEC) or their state regulator; thus, they are subject to the respective regulators’ rules.

Investment Advisers Act of 1940

Registered investment advisors (RIAs) fall under the regulatory umbrella of the Investment Advisers Act of 1940. The act established and imposed a fiduciary duty on financial advisors. Fiduciary obligations that land under the fiduciary duty typically include full and fair disclosures regarding any potential conflicts of interest and informed consent given by clients. The bottom line is that advisors should and must act in the best interest of their clients, rather than their own. Generally, advisors with at least $100 million in assets under management (AUM), must register with the SEC. Meanwhile, advisors that manage under $100 million AUM, usually must register with their respective state regulator, for example, the NJ Bureau of Securities.

The SEC recently adopted a new standard for financial advisors, known as Regulation Best Interest (Reg BI). This new rule places a uniform standard on brokers and IARs that give investment recommendations or advice to retail customers, like yourself. Reg BI requires financial advisors to “act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest…ahead of the interests of the retail customer.”

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