Thankfully, most people can live entire lives without ever having to deal with a breach of fiduciary duty from someone in whom they put their trust and assets. But for those who do have to deal with such scenarios, it can truly be a nightmare.
There are many ways a fiduciary duty can be breached. But one of the most common is when a financial adviser takes advantage of his or her position as an investment agent or stockbroker. Because of this, the Investment Advisers Act of 1940.32 deals with holding these professionals to specific fiduciary standards.
The Madoff case
Perhaps the most extreme example of a breach of fiduciary duty in modern times is the Bernie Madoff case. The former financial adviser and stockbroker is now serving a 150-year prison sentence for his Ponzi scheme that bilked investors out of $65 billion. While the breadth and scope of his rip-off is truly staggering, misappropriation of far lesser sums can still devastate the average Phoenix investor.
What constitutes a breach?
Before there can be a breach, there must first be a relationship in place that is based on trust and acknowledged. The relationship must have a defined scope and any breach of duty must arise within the relationship's scope.
If all of the above conditions are met, the fiduciary has a duty to take actions that are in the other person's or group's best interests, as they have invested confidence and trust in the fiduciary for decision-making purposes. Given that, the fiduciary is barred from simply using the marketplace morals to guide their choices.
ERISA and fiduciary duties
The Employee Retirement Income Security Act of 1974 (ERISA) governs employee benefit plans, e.g., medical and retirement. Plan administrators have the fiduciary duty to use their discretionary authority to safeguard a plan's assets solely in the beneficiaries' and participants' best interests.
While they can and do collect fees or salaries for their stewardship over the assets and investments they control, they may not otherwise personally benefit from their fiduciary actions.
Those who breach their duties, obligations or responsibilities under the ERISA statute bear the burden of personal liability. They must repay any ill-gotten profits from or losses to the plan from any breaches.
Where to turn if you suspect a breach
It can be difficult to wade through the legal jungle to determine whether or not a fiduciary breach occurred. Seeking information from law enforcement and the legal community is a good place to start if you suspect wrongdoing.