It is well settled that 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. Jaksich v. Thomson McKinnon Securities, Inc., 582 F. Supp. 485, 502 (S.D. N.Y. 1984); Schenck v. Bear Stearns & Co., 484 F. Supp. 937, 946 (S.D. N.Y. 1979).
Securities brokers are fiduciaries that owe their customers a duty of utmost good faith, integrity and loyalty. See Davis v. Merrill Lynch. Pierce. Fenner & Smith, 906 F. 2d 1206, 121 14 (8th Cir. 1990); Biggans v. Bache Halsey Stuart Shields, Inc., 638 F. 2d 605, 610 (3d Cir. 1980); Jaksich, 582 F. Supp. at 502. Davis, 905 F. 2d at 1216 (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); Mihara, 619 F. 2d at 824 (securities broker has a fiduciary duty to customer where broker knows or should have known that trust has been placed in him).
There is a duty to act in a customer’s best interests. See Gouger v. Bear , Stearns, 823 F. Supp. 282, 288 (E.D. Pa. 1993) ("the broker handling a discretionary 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 a account:
( 1 ) The duty to recommend a stock only after studying it sufficiently to become informed as to its nature, price and financial prognosis. Cash v. Frederick and Co., 57 F.R.D. 71 (E.D. Wis. 1972); Hanly v. SEC, 415 F. 2d 589 (2d Cir. 1969).
(2) The duty to inform the customer of the risks involved in purchasing and selling particular securities. See Hanly v. SEC, supra; Cash v. Frederick & Co., supra.; and,
(3) the duty not to misrepresent or omit any fact material to the transaction. Guilano Law Firm, P.C. Practice limited to the representation of investors in arbitration claims against stockbrokers for fraud, the sale of unsuitable investments, breach of fiduciary duty, failure to supervise. National Practice. Contingent Fee. Free Consultation. (877) SEC-ATTY.