You’ve worked hard for your money, and, understandably, you want your money to work for you. Finding a financial advisor can be challenging, and it may take some trial and error before you find the right one for you.
It’s essential that your financial advisor acts with your best interests at heart. Not only is this a professional courtesy, it’s also a legal obligation known as fiduciary duty. How do you know if your advisor breaches their fiduciary duty, and what actions can you take?
Recognizing the signs of a breach
It’s important to understand that not all financial professionals are fiduciaries. You want to ensure that you are working with a fiduciary financial advisor, or you might have someone who bases their recommendations on what earns them the highest commissions.
Fiduciary duty is the highest standard of care in law. It means your fiduciary financial advisor must act in your best interest, even if it means putting your interests ahead of their own. This responsibility has two key principles:
- Duty of care requires the advisor to give you advice that is based on adequate research. They need to consider your financial situation, goals and risk tolerance when making recommendations.
- Duty of loyalty obligates your advisor to be entirely faithful to you and avoid conflicts of interest. If any conflicts do arise, they must inform you and are never to use your assets for their own benefit or the benefit of their other clients without your consent.
A breach of fiduciary duty occurs when a fiduciary financial advisor fails to uphold their duties of care and loyalty and places your financial well-being in jeopardy. Warning signs to look for include:
- They push products that earn them a hefty commission fee, even though a better-performing alternative was available and more suitable for your goals.
- Fiduciary financial advisors have an obligation to communicate clearly and be transparent about all aspects of your financial plan, such as fees, risks and their reasoning for their recommendations. If they only give you vague answers to your questions, you discover charges on your statement that were never explained or they failed to explain risks, it could be indicative of a breach of duty.
- Your advisor continues to invest your money in risky investments or engages in excessive trading in your account to generate commissions for themselves, rather than to improve your returns.
- They make trades or changes to your portfolio without your permission.
Your fiduciary financial advisor should be providing you with peace of mind, not concern for your financial future. If you are worried that your advisor is breaching their fiduciary duty, you should speak with someone who has experience with professional malpractice claims. They can review your evidence and determine if you have grounds for a lawsuit. Their support is crucial if there is the potential for recovering any losses.