A broker or financial advisor has a fiduciary relationship with the customer. That is, a relationship where the customer places his or her trust with the investment professional, thereby imposing a duty on the professional to act primarily for the benefit of the customer. This duty arises because investment firms hold themselves out to the public as professionals with financial expertise, and customers in turn rely on these professionals for suitable investment advice.

Customers trust that their financial advisers will act in the best interests of the customer, but there are clear instances where a financial professional’s self-interest conflicts with the recommendations made to the customer. For example, there may be strong incentives for a broker to recommend certain products over others – this is common with proprietary products or when other investment companies have paid the brokerage firm to push certain products over others. Some products also have higher mark-ups and pay more in commissions. A high commission alone; however, does not prove a breach of fiduciary duty to the customer.

Proving a breach of duty to an arbitration panel generally requires a customer to demonstrate that a duty existed, that the financial professional breached that duty, and that the customer suffered damages. Whether or not a fiduciary duty exists is a question of fact, and can be different depending on whether the professional is a broker or an investment adviser.

Brokers owe their duty under the common law and the rules promulgated by FINRA, while investment advisers are governed under the Investment Advisers Act of 1940. Although the standards for each may be different, there is no question that both types of professionals have a duty to place the interests of the customer above their own.