Fiduciary Duty Could Change With New SEC Rules

Originally published by Cris Feldman.

A fiduciary duty is the highest duty imposed by law, and while there are many types of fiduciary relationships, the definition is very broad. Generally speaking, a fiduciary duty exists between a fiduciary and a trustee. The fiduciary is expected to act in the best interest of the trustee. This relationship applies to lawyers and clients, doctors and patients, and legal guardians and their wards. However, these are all very different relationships, so a one size fits all approach to the handling of a fiduciary duty can often lead to litigation. But, the definition of fiduciary duty could see some changes in the near future when it’s applied to brokers and investors.

The Securities and Exchange Commission (SEC) has been under pressure to address whether or not a fiduciary duty exists between brokers and financial managers and their clients. In April of this year, the SEC released a proposal to “address retail investor confusion about the relationships that they have with investment professionals.” Under the proposal, a broker-dealer making recommendations to retail customers would have a duty to act in the customer’s best interests. However, the proposal carefully referred to this as a “care obligation” rather than a fiduciary duty. While the proposal took steps to more clearly define the relationship between brokers and investors, the Investor Advisory Committee (IAC) of the SEC had several strong recommendations.

Fast-forward seven months, and the IAC voted to adapt the SEC’s proposed standards to include a more fiduciary-focused set of standards. The committee voted that the proposal should explicitly state the relationship between a broker and a client is a fiduciary one. The SEC will move forward with revising its proposal, but it is not yet clear exactly how the relationship will be defined. The SEC has expressed interest in defining the relationship in such a way that it can remain flexible.

Broker-Investor Relationships

Although the broker-investor relationship may see a more specific definition in the months and years to come, it is absolutely clear brokers do owe a duty of care to investors. Brokers should operate in good faith and without self-dealing. When people trust brokers with their financial assets, they deserve to have their best interests protected.

Fiduciary Duty Attorneys

If you believe your broker or other financial advisor has breached his or her fiduciary duty, do not wait to call Feldman & Feldman today. Our fiduciary duty attorneys are experienced trial lawyers and litigators that can help you hold fiduciaries accountable for financial losses they cause and other applicable damages.

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