What is fiduciary breach and what are the remedies?
A fiduciary breach is a violation of the fiduciary duty an advisor owes their client. Under federal law — the Investment Advisers Act of 1940, Section 206 — every Registered Investment Adviser owes clients a duty of loyalty and a duty of care. The duty of loyalty requires the advisor to put the client's interest above their own and to disclose, eliminate, or manage any conflicts. The duty of care requires the advice to be reasonable, well-researched, and suitable for the client. A breach happens when an advisor takes an undisclosed kickback, recommends a product because of the commission rather than the fit, fails to disclose a material conflict, churns an account to generate fees, or otherwise puts firm or personal interest ahead of the client. Remedies are real and layered: regulators can sanction, courts can order restitution, and clients can sue.
What counts as a breach
Common categories of breach in SEC enforcement actions:
- Undisclosed conflicts. Recommending a fund the firm has a revenue-sharing arrangement with, without disclosure.
- Unsuitable recommendations. Putting an 80-year-old in a 12-year fixed-indexed annuity with surrender charges.
- Excessive trading or churning. Generating commissions or wrap-fee charges without investment justification.
- Misappropriation. Using client assets for the advisor's own purposes.
- Cherry-picking. Allocating winning trades to favored accounts and losing trades to others.
- Misrepresentation in marketing. Performance claims that do not meet the Marketing Rule standards.
- Failure to disclose material facts. Including financial trouble, regulatory actions, or conflicts in the firm's Form ADV.
The remedies, ranked by who delivers them
Regulator-driven. The SEC, state securities regulators, and FINRA can impose civil monetary penalties, disgorgement of ill-gotten gains, censures, suspensions, and bars from the industry. These actions are filed in administrative proceedings or federal court.
Court-driven. Clients can sue under state or federal law for breach of fiduciary duty. Remedies include damages, rescission of the offending transactions, and in some cases punitive damages. The Investment Advisers Act gives clients a private right to seek rescission of an advisory contract entered into in violation of the Act.
Arbitration-driven. Most brokerage agreements and many RIA agreements require disputes to be resolved through FINRA Dispute Resolution or AAA arbitration. Awards can include compensatory damages and, less commonly, punitive damages.
Industry-driven. The CFP Board, NAPFA, and the CFA Institute each enforce their own ethics codes, with revocation of credentials as the strongest sanction.
How long the consumer has to act
The statute of limitations on a federal breach claim varies by theory. Under the Investment Advisers Act, the right to seek rescission has its own short window. State-law claims often have a longer window — typically 2 to 6 years from the date of discovery. Arbitration tribunals enforce contractual time limits that can be even shorter. Anyone who suspects a breach should not delay; the clock often starts on the date the conduct could have been discovered with reasonable diligence.
What the public record looks like after a breach
Resolved breach cases appear on the advisor's IAPD and BrokerCheck records as disclosure events. Consumers should treat any unresolved disclosure with the same product type as a major signal — repeat conduct in the same product line is the most reliable predictor of future risk.