Breach of Fiduciary Duty Claims Against Financial Advisors

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Can I Sue My Broker or Financial Advisor for Breach of Fiduciary Duty?

Yes, you can. One of the most common lawsuits filed by investors against brokers, financial advisors, and brokerage firms is for breach of fiduciary duty.

Financial advisors are expected to provide sound investment advice, make prudent financial decisions, and prioritize their clients’ best interests. However, when an advisor violates this trust, the consequences for investors can be severe. If a financial advisor breaches their fiduciary duty, both the advisor and their brokerage firm can be held liable for damages and investment losses.

What Is a Fiduciary Duty?

A fiduciary duty is the highest legal standard of care in the U.S. financial industry. It requires financial advisors to:

1. Act solely in their clients’ best interests
2. Avoid conflicts of interest
3. Base decisions on the client’s financial goals, risk tolerance, and needs

This duty is stricter than the “suitability standard”, which some financial professionals follow. The suitability standard only requires that recommendations be appropriate for the client—not necessarily in their best interest.

Key Responsibilities of a Fiduciary:

• Duty of Loyalty – Advisors must always prioritize their clients’ financial interests above their own.
• Duty of Care – Advisors must exercise prudence and competence when managing clients’ assets.
• Duty of Good Faith – Advisors must act honestly and transparently, fully disclosing any relevant information.

How Can a Breach of Fiduciary Duty Occur?

A breach of fiduciary duty occurs when an advisor’s actions serve their own interests rather than the client’s. Common examples include:

1. Self-Dealing

When an advisor engages in transactions that benefit them at the client’s expense—such as selling high-commission investment products that are not in the client’s best interest.

2. Excessive Fees or Hidden Charges

Charging unjustifiably high fees or failing to disclose commissions and costs associated with certain investments.

3. Failure to Diversify

Over-concentrating investments in a single asset class, exposing the client to unnecessary risk instead of following diversification principles.

4. Misrepresentation or Omission

Withholding critical information about an investment’s risks, conflicts of interest, or other key details that could impact the client’s decision.

5. Churning (Excessive Trading)

Excessive buying and selling of securities to generate commissions—without regard for the client’s financial objectives.

6. Failure to Act in a Timely Manner

Delays in executing trades or making necessary adjustments to a portfolio—especially in volatile market conditions—can result in financial losses.

Legal Consequences of a Breach of Fiduciary Duty

If a financial advisor breaches their fiduciary duty, investors have several legal options to seek compensation:

1. Lawsuits for Damages

Clients can file a civil lawsuit to recover financial losses. Compensation may include:


• Direct financial losses
• 
Lost profits

• Punitive damages (in cases of severe misconduct)

2. Arbitration

Most brokerage agreements include mandatory arbitration clauses, requiring clients to resolve disputes through FINRA arbitration instead of a traditional lawsuit. Arbitration is often faster and more cost-effective than going to court.

3. Rescission of Contracts

In some cases, investment transactions can be undone, restoring both parties to their original financial positions before the breach occurred.

Preventing a Breach: How Clients Can Protect Themselves

To reduce the risk of becoming a victim of fiduciary misconduct, investors should take proactive steps:

• Choose an Advisor Who Follows Fiduciary Standards
  • Verify Licensing: Check if your advisor is a Registered Investment Advisor (RIA), as RIAs are legally required to follow fiduciary duty.
  • Use FINRA’s BrokerCheck: Look up advisors to ensure they have a clean record.
• Ask About Conflicts of Interest
  • Understand Compensation: Ask if your advisor receives commissions from third parties (e.g., investment product providers).
• Monitor Your Accounts
  • Regularly Review Statements: Ensure transactions align with your financial goals.
  • Watch for Red Flags: Be cautious of excessive trading, unexplained investment losses, or unexpected fees.
• Understand Investment Recommendations
  • Ask Questions: Request a detailed explanation of why a particular investment is recommended.
  • Ensure Suitability: Confirm that investment choices align with your risk tolerance and long-term goals.

Why Choose Israels & Neuman, PLC?

At Israels & Neuman, PLC, our attorneys have extensive experience handling breach of fiduciary duty claims and investment fraud cases.

• We have recovered millions of dollars for investors.
• 
We take cases on a contingency fee basis – meaning you don’t pay unless we win.

• We represent investors in FINRA arbitration and litigation nationwide.

If you believe you’ve been a victim of fiduciary misconduct, contact us today at (720) 599-3505 for a free consultation.