STOCK ISSUES
Breach of Fiduciary Duty ...
A fiduciary is a person or business entrusted with the power and obligation to act in the best interests of another party (beneficiary) in a relationship of complete trust, good faith, honesty and responsibility. Common examples include estate trustees, financial advisers, attorneys, real estate agents and others including stock brokers who may under certain circumstances enter relationships in which the other party has total confidence that the fiduciary is acting on their behalf, often because of specialized knowledge or expertise.
The fiduciary must at all times exhibit a standard of conduct above and beyond that of a stranger or casual business relationship. Notably, the fiduciary must not have conflicts of interest with the beneficiary nor engage in self-dealing in which the fiduciary’s interests are placed above those of the beneficiary. Any benefit the fiduciary derives from the relationship, e.g., fees or commissions, must be fully disclosed and acceptable to the trusting party.
A breach of fiduciary duty may occur in any number of circumstances in which the fiduciary acts inappropriately to the beneficiary’s detriment. For example, trustees of an estate must be actively engaged in the proper management and administration of the estate’s assets or risk legal action that may result in removal, financial reparations or even criminal charges.
New York law is illustrative of the duties of a stock broker to his customer. If the agreement with the customer is discretionary, the broker owes the customer a general fiduciary duty. If the agreement is non-discretionary, the broker’s fiduciary duty to the customer is limited to the duties entrusted to him related to orders including the duty to achieve best execution. In normal circumstances there is no on-going duty to the customer including any duty to supply the customer with advice relating to his positions. However, where special circumstances exist, the fiduciary duty of a stock broker may be expanded beyond that indicated above.
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