When one party is entrusted with the care of funds or property and must act on behalf of another, a fiduciary duty is created. As the former party is obligated to act in good faith and in the best interest of the latter party, for their benefit, the former party becomes a fiduciary.
When advisors are responsible for the care of their client’s funds and property, they become fiduciaries and thereby owe their clients a fiduciary duty by law. When that duty is breached, advisors can be ordered to pay damages, they could be subject to sanctions or statutory disqualification, and they could even face criminal charges.
Generally, in order to show that a fiduciary duty was breached, a customer must prove by a preponderance of the evidence that each of the following four elements was met:
- A fiduciary relationship did in fact exist, in that the advisor owed a special duty to the customer.
- That existing fiduciary duty was breached by the advisor.
- The customer suffered damages.
- The damages suffered were substantially caused by the fiduciary, as a result of that party’s breach of fiduciary duty.
We are acutely aware of the many frivolous investor complaints brought by customers (or their attorneys who coach them) in order to score a quick “nuisance settlement” from the firm. In eight out of ten of these new client disputes, your firm will be looking to settle with your client to avoid litigation.
It’s simple — it almost always costs more to litigate than to just cut a nominal check and leave you with a new Customer Dispute disclosure on your BrokerCheck, IAPD, and ADV.
If you were terminated by your broker-dealer or RIA, or you know that a U5 termination is imminent, hiring AdvisorLaw now is critical to ensuring that your interests are represented. And if your firm is alleging regulatory or firm policy violations, this may be merely the first of many dominoes to fall in a much larger FINRA or SEC enforcement investigation.