A “fiduciary” is an individual or entity that is placed in a position of trust. In a securities and investment context, fiduciaries owe their customers duties of care, good faith, fair dealing, trust, impartiality, loyalty, and integrity. Unfortunately, as set out below, investment fiduciaries can breach their duties to their customers in a number of ways.
If you believe your financial advisor or broker breach their fiduciary duty to you causing you losses, you should contact one of our attorneys as soon as possible.
Financial advisors to public customers may fall under one of two regulatory umbrellas (or both). They may be either a FINRA registered representative working for a Broker-Dealer (securities brokerage firm), or they may be an Investment Advisor Representative working for an Registered Investment Advisor (RIA) firm.
Registered Investment Advisors are considered fiduciaries under federal law, and typically under state law and regulations. For example, Virginia Securities Regulation 21 VAC 5-80-200(A) explicitly states: “An investment advisor or federal covered advisor is a fiduciary and has a duty to act primarily for the benefit of his clients.” Section B of the regulation further applies this duty to investment advisor representatives.
FINRA registered advisors may also be considered fiduciaries under state law explicitly, or based on the circumstances and relationship with their customer. For example, see the following Virginia cases:
In addition, in 2019 the U.S. Securities and Exchange Commission (SEC) issued Regulation Best Interest (Reg BI), 17 CFR § 240.15l-1, which became effective June 30, 2020. The regulation applies to recommendations of securities transactions or strategies to retail customers by Broker-Dealers (FINRA registered brokerage firms) and their financial advisors (associated persons or registered representatives).
The standard under Reg BI is very similar to one that would be applied to a fiduciary – the recommendation must be in the best interest of the customer. The regulation further requires that the recommendation be made “without placing the financial or other interest of the broker, dealer, or natural person who is an associated person of a broker or dealer making the recommendation ahead of the interest of the retail customer.”
Breaches of fiduciary duty by either an RIA or FINRA representative broker may include making unsuitable recommendations, trading without authorization, failing to disclose risk, failing to disclose conflicts of interest, misstating risk, churning an account for personal gain, stealing monies from a customer, recommending an investment to earn a higher fee or commission, or selling investments without understanding their risks.
Fiduciaries of ERISA pension plans are subject to the fiduciary requirements of ERISA. 29 U.S.C. § 1104 imposes a prudent man standard of care and requires that “a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and- (A) for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan.”
The attorneys at Greco & Greco have filed many FINRA arbitrations over the past 25 years involving breaches of fiduciary duty owed to customers. If you believe that your broker / financial advisor or brokerage firm has engaged in unauthorized trading in your securities / investment account, please contact Scott Greco for a free attorney consultation.
Our Virginia securities fraud lawyers represent individuals from all states across the country and have decades of experience protecting the rights of customers, and holding securities firms responsible for the acts of their brokers, advisors, and fiduciaries.