Breach of Fiduciary Duties

Mark Anchor Albert and Associates handles all types of fiduciary breach claims.

Many types of customer accounts may be subject to fiduciary duty standards—that is, the broker/dealer, investment advisor, or financial planner must undertake diligent efforts to protect the customer’s interests, putting those interests first, taking no unfair advantage of the customer, and disclosing all material information that may impact the customer’s account, including any conflicts of interest. These types of accounts may include:

  • Trusts including revocable, irrevocable and charitable
  • Individual retirement accounts, including IRA accounts
  • Personal or business investment accounts
  • ERISA Defined Benefit Pension, Defined Contribution Profit Sharing, and 401k plans
  • Public Employees’ Pension and Retirement Plans
  • Union Pension and Retirement Plans
  • Non-profits, Foundations and Endowments

To establish a cause of action for breach of fiduciary duty, a plaintiff must demonstrate the existence of a fiduciary relationship, breach of that duty, and damages. Shopoff & Cavallo LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1509. Various relationships can give rise to fiduciary responsibilities. For example, the relation between attorney and client is a fiduciary relation of the very highest character. Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 189. But a breach of fiduciary duty is a species of tort distinct from a cause of action for professional negligence or attorney malpractice. Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.

Stockbrokers and investment advisors also typically owe fiduciary duties to their clients. They have a fiduciary duty (i) to ascertain that the investor understands the investment risks in the light of his or her actual financial situation; (ii) to inform the customer that no speculative investments are suitable if the customer persists in wanting to engage in such speculative transactions without the stockbroker’s or investment advisor’s being persuaded that the customer is able to bear the financial risks involved; and (iii) to refrain completely from soliciting the customer’s purchase of any speculative securities which the stockbroker considers to be beyond the customer’s risk threshold. As long as these duties are met, if the customer nevertheless insists on purchasing speculative securities, the stockbroker is not barred from advising the customer about various speculative securities and purchasing for the customer those securities which the customer selects. Duffy v. Cavalier (1989) 215 Cal.App.3d 1517, 1532.

Indeed, the relationship between any stockbroker or investment advisor and his or her customer imposes on the former the duty to act in the highest good faith toward the customer. Duffy, supra, 215 Cal.App.3d at p. 1534. A stockbroker’s or investment advisor’s fiduciary duty requires more than merely carrying out the stated objectives of the customer, the stockbroker must determine the customer’s actual financial situation and needs. If it would be improper and unsuitable to carry out the speculative objectives expressed by the customer, there is a further obligation on the part of the stockbroker or investment advisor to make this known to the customer, and to refrain from acting except upon the customer’s express orders. Under such circumstances, although the stockbroker or investment advisor can advise the customer about the speculative options available, he or she should not solicit the customer’s purchase of any such speculative securities that would be beyond the customer’s risk threshold. Duffy, supra, 215 Cal.App.3d at p. 1538.

A fiduciary must tell its principal of all information it possesses that is material to the principal’s interests. A fiduciary’s failure to share material information with the principal is constructive fraud, a term of art obviating actual fraudulent intent.

Where a fiduciary relationship exists, facts which ordinarily require investigation may not incite suspicion and do not give rise to a duty of inquiry. Where there is a fiduciary relationship, the usual duty of diligence to discover facts does not exist. Hobbs v. Bateman Eichler, Hill Richards, Inc. (1985) 164 Cal.App.3d 174, 202.

If you are facing claims for breach of fiduciary duties, or are the victim of fiduciary breaches, you can count on the financial fraud attorneys at Mark Anchor Albert and Associates to represent you well.