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What does a breach of fiduciary duty mean?

On Behalf of | Dec 7, 2020 | Civil Litigation |

Bestselling business author Stephen R. Covey wrote that “Trust is the glue of life… It’s the foundational principle that holds all relationships.” Unfortunately, as everyone learns sooner or later, you cannot trust everyone.

Specific business relationships require more trust than most. Sometimes, you have no choice but to place yourself in other people’s hands and rely on their experience and expertise. One example would be a person’s relationship with their investment advisor. They hire an expert because they lack the necessary knowledge of the financial system.

The relationship is formed not out of friendship but because of the need for advice. The investment advisor, therefore, has a fiduciary duty to their client. They must act in the best interests of their client at all times and avoid any conflict of interest.

A year later, the client begins to suspect something is amiss. Following the advice has cost her money, and some of the recommendations seem odd. One option she has is to end the relationship. However, if it has cost her money, she may consider pursuing civil litigation for breach of fiduciary duty. To do this, she would usually need to prove four things:

  • Duty: The investment advisor must have a fiduciary duty. A contract is one way of confirming the client-advisor relationship. If the advice was given one night while drinking in a bar, the advisor might claim there was no fiduciary duty.
  • Breach: Did the advisor give misleading advice or omit to mention things? Did they have an ulterior motive, such as standing to gain themselves?
  • Damages: Did the small business owner lose something? It could be money, prestige, personal information or opportunities.
  • Causation: Was the loss directly related to the breach?

Many business relationships involve a fiduciary duty. Interestingly, not all financial advisors are held to these standards. If you feel someone has broken the trust you placed in them, seek legal advice to clarify if there was a breach of fiduciary duty.