Breach of Fiduciary Duty
The relationship between a broker and his customer is one of principal and agent by virtue of which a broker is subject to certain fiduciary obligations to the client. Securities brokers are fiduciaries that owe their customers a duty of utmost good faith, integrity and loyalty.
A fiduciary relationship exists between a securities broker and customer because broker is a licensed professional who holds himself out as a trained and experienced person to render a specialized service. A securities broker has a fiduciary duty to customer where broker knows or should have known that trust has been placed in him); See Gouger v. Bear , Stearns, 823 F. Supp. 282, 288 (E.D. Pa. 1993) ("the broker handling account has an unequivocal fiduciary duty to the customer with respect to the broker's investment activities and to any facet of their relationship that pertains to the customer's money"). The court in Lieb v. Merrill Lynch, 461 F. Supp. 951, 953 (E.D. Mich. 1978), enumerated a number of duties of a broker maintaining an account:
Such a broker. . . must (1) manage the account in a manner directly comporting with the needs and objectives of the customer as stated in the authorization papers or as apparent from the customer's investment and trading history [citation omitted]. (2) keep informed regarding the changes in the market which affect the customer's interest and act responsively to protect those interests [citation omitted]; (3) keep his customer informed as to each completed transaction; and (5) [sic] explain the practical impact and potential risks of the course of dealing in which the broker is engaged.
Breach of fiduciary duty is a form of stockbroker fraud or misconduct.
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