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Legal Memorandum: Obligations of a Financial Advisor

Issue: What are the obligations of a financial advisor?

Area of Law: Banking & Finance Law, Litigation & Procedure
Keywords: Financial advisor; Obligations; Confidential relationship
Jurisdiction: Federal, New Jersey
Cited Cases: 505 A.2d 220; 885 A.2d 482; 647 N.Y.S.2d 433; 793 N.Y.S.2d 397
Cited Statutes: None
Date: 03/01/2009

A financial advisor is under a duty as one who undertook to act for the other “in a matter of trust and confidence . . . not to act contrary to the interests of the one relying upon his integrity.”  Tiernan v. Carasaljo Pines, 143 A.2d 892, 900 (N.J. Super. Ct. App. Div. 1958).  This duty is imposed in a confidential relationship even when a relationship of trust and confidence has not been expressed between the parties.  Id. at 900.  Rather, when the evidence shows a “pervading atmosphere . . . point[ing] to a relationship of trust and confidence,” the court will find such a relationship with its attendant “duty of full disclosure and fair dealing.”  Id.  See also In re Garson, 793 N.Y.S.2d 397 (Sup. Ct. App. Div. 2005) (concluding that the agent breached fiduciary duty to incapacitated principal by failing to keep records of withdrawals from her accounts); In re Wingate, 647 N.Y.S.2d 433 (Sup. Ct. Queens County 1996) (finding breach of fiduciary duty by agent who did not exercise utmost good faith toward principal with diminished capacity).

An apparent authority is created when the reasonably interpreted words or actions of a principal cause the agent to believe that the principal wants the agent to act on the principal’s behalf, Jennings v. Reed, 885 A.2d 482, 490 (N.J. Super. Ct. App. Div. 2005.

If a principal insists on aggressive or high risk strategies, a financial advisor’s duty is to […]

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