🛡 Understanding Fiduciary Duty
A fiduciary duty is the highest standard of care recognized in law. When someone owes you a fiduciary duty, they must act solely in your best interest, putting your interests above their own. This goes far beyond ordinary business relationships or even professional malpractice standards.
Who Owes Fiduciary Duties?
| Type of Fiduciary | Owes Duty To | Key Context |
|---|---|---|
| Trustee | Trust beneficiaries | Managing trust assets, distributions, investments |
| Investment Advisor (RIA) | Advisory clients | Investment recommendations, portfolio management |
| Attorney | Clients | Legal representation, advice, handling client funds |
| Corporate Officer/Director | Corporation and shareholders | Business decisions, corporate governance |
| Guardian/Conservator | Ward (protected person) | Personal and financial decisions for incapacitated person |
| Executor/Administrator | Estate beneficiaries | Settling decedent's estate, distributing assets |
| Agent (Power of Attorney) | Principal | Acting on behalf of principal per POA authority |
| ERISA Plan Fiduciary | Plan participants | Managing retirement plan assets and administration |
Fiduciary vs. Suitability Standard
Not all financial professionals are fiduciaries. Traditional broker-dealers only had a "suitability" standard - recommending suitable investments, not necessarily the best ones. While Regulation Best Interest (Reg BI) raised the bar, it's still narrower than full fiduciary duty. Always clarify what standard applies to your advisor.
⚖ Core Fiduciary Duties
Fiduciaries owe several distinct but overlapping duties:
Duty of Loyalty
The fiduciary must act solely in the beneficiary's interest, not their own. This prohibits self-dealing, conflicts of interest, usurping opportunities, and competing with the beneficiary. The fiduciary cannot profit from their position beyond agreed-upon compensation.
Duty of Care / Prudence
The fiduciary must exercise reasonable care, skill, and caution in managing the beneficiary's affairs. For investments, this means the "prudent investor" standard - diversifying appropriately, considering risk tolerance, and making informed decisions.
Duty of Good Faith
The fiduciary must act honestly and fairly, not take advantage of the beneficiary's trust, and not act with improper motive. Bad faith includes acting to harm the beneficiary or knowingly violating the law or governing documents.
Duty to Account / Disclose
The fiduciary must keep accurate records, provide regular accountings, and disclose all material information. Beneficiaries have the right to know how their assets are being managed and to receive complete and honest information.
Duty to Follow Instructions
The fiduciary must follow the governing document (trust, POA, etc.) and lawful instructions from the beneficiary or principal. Deviation from these terms without authorization is a breach.
❌ Common Types of Fiduciary Breach
💵 Self-Dealing
Fiduciary uses beneficiary's assets for personal benefit - buying assets from themselves, lending trust funds to themselves, or personal use of trust property.
👥 Conflicts of Interest
Undisclosed transactions with related parties, recommending investments that pay the fiduciary higher commissions, or dual representation without consent.
📈 Imprudent Investment
Failing to diversify, taking excessive risk inappropriate for the beneficiary, investing in speculative or unsuitable products, or failing to monitor investments.
💰 Excessive Fees / Churning
Charging unreasonable fees, excessive trading to generate commissions (churning), or hidden fees not disclosed to the beneficiary.
Additional Breach Scenarios
| Type of Breach | Examples | Common Fiduciaries |
|---|---|---|
| Misappropriation | Stealing assets, unauthorized transfers, diverting funds | Trustees, guardians, agents under POA |
| Failure to Account | Not providing required reports, hiding transactions, incomplete records | All fiduciaries |
| Failure to Distribute | Withholding distributions beneficiaries are entitled to receive | Trustees, executors |
| Favoritism | Treating beneficiaries unequally when required to treat equally | Trustees, executors |
| Breach of Confidentiality | Disclosing private financial information without authorization | All fiduciaries |
| Unauthorized Delegation | Improperly delegating fiduciary duties to others | Trustees, agents |
Self-Dealing Presumed Improper
When a fiduciary engages in self-dealing, the transaction is presumed improper and voidable. The burden shifts to the fiduciary to prove the transaction was fair and in the beneficiary's best interest. This is one of the strictest rules in fiduciary law.
💰 Recoverable Damages
Breach of fiduciary duty can result in powerful remedies beyond ordinary damages:
| Remedy Type | Description |
|---|---|
| Actual Losses | The value of assets lost, investments that declined due to negligence, or other direct financial harm caused by the breach |
| Disgorgement of Profits | The fiduciary must return any profits they made from the breach - even if you suffered no loss. This deters fiduciary misconduct. |
| Constructive Trust | Court imposes a trust over assets the fiduciary improperly obtained, requiring them to turn those assets over to you |
| Fee Forfeiture | The fiduciary may forfeit some or all compensation received during the period of breach |
| Punitive Damages | For egregious, willful, or fraudulent breaches, courts may award punitive damages to punish the fiduciary |
| Attorney Fees | Many jurisdictions allow recovery of attorney fees in fiduciary breach cases, especially from trust assets |
| Removal of Fiduciary | Court can remove the breaching fiduciary and appoint a replacement |
Disgorgement: A Powerful Remedy
Unlike ordinary negligence cases, fiduciary breach allows you to recover the fiduciary's profits even if you cannot prove actual loss. If your trustee invested trust funds in their own business and made $100,000 profit, you may recover that $100,000 regardless of whether the trust was harmed.
📝 Sample Demand Letter
Send this letter via certified mail with return receipt requested. For trustees and fiduciaries with insurance coverage, request they tender to their carrier.
BREACH OF FIDUCIARY DUTY DEMAND
[Your Name]
[Your Address]
[City, State ZIP]
[Phone]
[Email]
[Date]
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
[Fiduciary Name]
[Title/Capacity - e.g., "Trustee of the Smith Family Trust"]
[Address]
[City, State ZIP]
Re: Demand for Accounting and Compensation - Breach of Fiduciary Duty
[Trust Name / Relationship - e.g., "Smith Family Trust dated January 1, 2020"]
Beneficiary: [Your Name]
Dear [Fiduciary Name]:
I write as a beneficiary of the [Trust Name / describe fiduciary relationship] to demand an accounting and compensation for your breach of fiduciary duty.
FIDUCIARY RELATIONSHIP:
You serve as [Trustee / Financial Advisor / Agent under Power of Attorney / etc.] with fiduciary duties to [me / the beneficiaries of the Trust / etc.]. Your fiduciary appointment [arose from the Trust Agreement dated X / Investment Advisory Agreement dated X / Power of Attorney executed X / etc.].
As a fiduciary, you owe the highest duty of loyalty, care, good faith, and full disclosure.
YOUR BREACH OF FIDUCIARY DUTY:
You have breached your fiduciary duties in the following respects:
[Describe specific breaches:]
1. BREACH OF DUTY OF LOYALTY - SELF-DEALING: [E.g., "You purchased trust real estate for yourself at below-market value without disclosure to or consent from beneficiaries"]
2. BREACH OF DUTY OF CARE - IMPRUDENT INVESTMENT: [E.g., "You invested 80% of trust assets in a single speculative stock, failing to diversify as required under the prudent investor rule"]
3. BREACH OF DUTY TO ACCOUNT: [E.g., "Despite repeated requests, you have failed to provide any accounting of trust assets, income, or distributions for the past 3 years"]
4. BREACH OF DUTY OF GOOD FAITH: [E.g., "You have withheld distributions I am entitled to receive under the trust terms while paying excessive trustee fees to yourself"]
DAMAGES:
As a direct result of your breach of fiduciary duty, I have suffered the following damages:
1. Loss of trust assets from imprudent investment: $[Amount]
2. Your profits from self-dealing (disgorgement): $[Amount]
3. Excessive fees charged: $[Amount]
4. Distributions wrongfully withheld: $[Amount]
5. Interest on wrongfully withheld funds: $[Amount]
TOTAL DAMAGES: $[Total]
DEMAND:
I demand the following within thirty (30) days:
1. FULL ACCOUNTING: A complete accounting of all [trust / account] assets, income, expenses, and distributions from [date] to present;
2. COMPENSATION: Payment of $[Amount] to compensate for your breaches;
3. RETURN OF PROPERTY: [If applicable: Return of specific property wrongfully taken or purchased];
4. RESIGNATION: Your voluntary resignation as [Trustee / etc.] and cooperation in transitioning to a successor fiduciary.
If you carry fiduciary liability insurance or professional liability coverage, you are directed to immediately tender this claim to your insurance carrier.
PRESERVATION NOTICE:
You are directed to preserve all documents relating to your fiduciary duties, including but not limited to: the governing document [Trust Agreement, POA, etc.], all financial records, account statements, transaction records, correspondence, and communications with beneficiaries or third parties regarding the [trust / account / etc.].
If I do not receive satisfactory resolution within 30 days, I will:
1. File a petition to compel accounting and remove you as fiduciary;
2. File a civil lawsuit for breach of fiduciary duty, seeking compensatory and punitive damages;
3. [If applicable: File a complaint with FINRA / the SEC / state securities regulator];
4. Seek recovery of all damages, attorney fees, and costs available under law.
This letter is written without prejudice to any rights or remedies I may have, all of which are expressly reserved.
Sincerely,
_______________________________
[Your Signature]
[Your Printed Name]
cc: [Other beneficiaries, if appropriate]
[Co-trustees or successor trustees, if applicable]
Enclosures:
- Copy of governing document (Trust, POA, etc.)
- Documentation of breaches
- Account statements (if available)
- Prior written requests for accounting
📋 Steps to Take Before Filing
- Review the governing document - Read the trust agreement, POA, advisory agreement, or other document establishing the fiduciary relationship
- Request an accounting - Formally request a complete accounting of all transactions, assets, and fees in writing
- Gather your own records - Collect statements, correspondence, and documents you have access to
- Document the breaches - Create a detailed timeline of suspicious transactions or failures
- Identify the fiduciary's assets - Research whether they have insurance, bonds, or personal assets for recovery
- Consult with other beneficiaries - Coordinate with other affected parties if appropriate
- Check regulatory options - For financial advisors, research FINRA arbitration, SEC complaints, or state securities complaints
- Calculate your damages - Quantify losses, disgorgement amounts, and other damages
Right to Accounting
Beneficiaries generally have a legal right to receive accountings from fiduciaries. If the fiduciary refuses, you can petition the court to compel an accounting. The fiduciary's refusal to provide records is itself evidence of breach and may be sanctioned by the court.
📜 Regulatory Complaints and Arbitration
For financial professionals, regulatory options may provide faster resolution than court:
FINRA Arbitration (Broker-Dealers)
- Most brokerage agreements require disputes go to FINRA arbitration
- Faster and less expensive than court litigation
- Arbitrators can award compensatory damages, fees, and interest
- Decisions are binding and difficult to appeal
- File within 6 years of the event giving rise to the dispute
SEC Complaints (Investment Advisors)
- For registered investment advisors and their representatives
- SEC can investigate, impose fines, and ban individuals from the industry
- May order disgorgement of ill-gotten gains
- Cannot order compensation directly to you, but creates pressure for settlement
State Securities Regulators
- State regulators handle many advisor complaints
- May have stronger consumer protection powers than federal agencies
- Some states have investor recovery funds
Check Your Agreement for Mandatory Arbitration
Many financial services agreements contain mandatory arbitration clauses. If your dispute involves a broker-dealer or investment advisor, you may be required to arbitrate rather than sue in court. Review your agreements carefully and consult an attorney about your options.
❓ Frequently Asked Questions
What is a fiduciary duty?
A fiduciary duty is the highest standard of care in law. Fiduciaries must act solely in the best interest of the person they serve, putting that person's interests above their own. This includes duties of loyalty, care, good faith, confidentiality, and full disclosure. Common fiduciaries include trustees, financial advisors, attorneys, corporate officers, and guardians.
What is the statute of limitations for breach of fiduciary duty?
Statutes of limitation vary by state and type of fiduciary, typically 2-6 years. Many states apply a discovery rule, starting when you discover (or should have discovered) the breach. For ongoing relationships like trusts, the statute may not begin until the relationship ends or an accounting is provided. Fraudulent concealment may toll (pause) the statute.
Can I recover the fiduciary's profits even if I did not lose money?
Yes. "Disgorgement" allows you to recover any profits the fiduciary made from their breach, regardless of whether you suffered actual loss. This powerful remedy ensures fiduciaries cannot profit from violating their duties. If a trustee used trust funds to make a profitable investment for themselves, you can recover those profits.
Is my financial advisor a fiduciary?
It depends. Registered Investment Advisors (RIAs) are fiduciaries. Traditional broker-dealers historically were not, though Regulation Best Interest now requires them to act in customers' "best interest" when making recommendations. This is narrower than full fiduciary duty. Ask your advisor directly whether they are a fiduciary and get the answer in writing.
Can I remove a trustee who breached their duty?
Yes. Courts have authority to remove trustees for breach of fiduciary duty. Grounds include self-dealing, failure to account, inability or unwillingness to administer the trust, conflict of interest, or serious breach of duty. The trust document may also specify grounds for removal. Petition the court with evidence of the breach.
What if the fiduciary claims they acted in good faith?
Good faith is not a complete defense. While it may reduce damages in some cases, a fiduciary who negligently causes loss is still liable even without bad intent. For self-dealing, good faith is largely irrelevant - the transaction is presumed improper and the fiduciary must prove it was entirely fair. Ignorance of fiduciary duties is not an excuse.
Need Help With Your Fiduciary Breach Claim?
Fiduciary cases involving trusts, investments, or complex financial arrangements often require specialized legal expertise.
Contact: owner@terms.law