Breach of fiduciary duty is one of the most common claims asserted by investors in securities litigation and arbitration. The relationship between an investor and a securities broker is that of principal and agent. Under the law, a securities broker is considered a fiduciary with respect to all matters within the scope of the agency. A fiduciary, like a trustee, is under the highest of duties - one that is, in the famous words of Judge Benjamin Cardozo, "something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior."

Securities fraud and breach of fiduciary duty are separate legal claims that often overlap. The same set of facts may give rise to both claims. Perhaps the most common situation occurs when a broker sells an unsuitable [link] investment. It is both a fraudulent act and a breach of fiduciary duty for a broker to recommend an investment without a reasonable basis for believing that it is suitable for the investor.

With the term "financial adviser" appearing on brokers' business cards (instead of "account representative" or "stockbroker"), investors often have the mistaken impression not only that their broker is "on their team," but that he or she is almost a member of the family. It is a message many brokerage firms try to sell in their advertising. The message implies that their brokers are fiduciaries to their customers. When losses occur, however, and customers try to hold brokers to the fiduciary duty standard, brokers invariably argue that they do not owe their customers such a duty.

In fact, the securities industry has long taken the position (supported by the Securities and Exchange Commission) that securities brokers are not bound by the fiduciary standard of care and do not have to register as investment advisors even when giving investment advice or managing investments for a fee.