The relationship between an investment professional and an investor is a relationship based upon trust. The professional knows intimate financial details about the investor, and the investor relies upon the expertise and advice of the professional. The investment professional always has a duty of good faith and fair dealings toward the investor. The nature of the investment relationship may give rise to an even higher duty—a “fiduciary duty.”
Fiduciaries are individuals who have an obligation to act in the best interest of another person or entity and to put the interests of that other person above his or her own. Corporate directors have a fiduciary duty to the corporation’s shareholders. Trustees have a fiduciary duty to the trust and the trust beneficiaries. Lawyers have a fiduciary duty to their clients. Investment professionals may have a fiduciary duty to their investors.
When a fiduciary duty exists, the investment professional must do the following:
The breach of a fiduciary duty is a very serious matter. When a breach occurs, the investment advisor and the brokerage firm will normally be required to restore all of the investor’s losses.