If you are concerned that a breach of fiduciary duty is occurring, learning about common warning signs could help you. It is difficult to know which advisors to trust with your important financial and personal information. Fiduciaries are supposed to follow all the rules when working with clients – but what if they might be breaching a duty? People working with fiduciaries should be aware of five warning signs for potential breaches of fiduciary duty.
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Fiduciary Refuses to Provide Documents
A fiduciary refusing to provide documents related to their fiduciary relationship may be a warning sign. Often, fiduciaries such as trustees must provide certain information or documents to beneficiaries when the beneficiaries request it. Another example is that accountants must return their clients’ original tax documents on request.
Keep in mind that in some instances, fiduciaries can refuse a request for documents. For example, a trustee does not have to provide trust information to someone uninvolved with the trust (such as a relative of the settlor who is not a beneficiary). Fiduciaries may even be under a legal obligation not to disclose certain documents or information, as when client confidentiality applies.
However, you may be legally entitled to the documents if you are a beneficiary, principal, or client of the fiduciary. When a fiduciary refuses to give you documents, you may need legal help to investigate a possible breach of fiduciary duty.
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Accounting Doesn’t Add Up
Along similar lines, a fiduciary may need to provide an accounting of a trust’s financial situation or a client’s investment accounts. Some trustees must produce accountings upon beneficiary request, depending on the trust’s terms. An accounting explains how money has been spent and where it has been invested, as well as returns on the investments.
If you receive an accounting (or other financial documents) and something doesn’t add up, a fiduciary duty could have been breached. You may want to seek a second opinion about the accounting by talking to a lawyer about your options. Unfortunately, financial wrongdoing in fiduciary relationships is not unheard of. When your money or property is at stake, make sure you investigate an accounting that raises more questions than it answers.
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Fiduciary Doesn’t Follow Instructions
Some principals in fiduciary relationships can give the fiduciaries instructions on how they want to proceed. For example, a client can tell a lawyer that he does not want to settle the case. Or a deceased person’s will may instruct an executor to distribute property to heirs in a particular way. If a fiduciary does not follow those instructions, there might be a breach of fiduciary duty. Fiduciaries have a duty of loyalty to principals to act in line with the principals’ interests. They also have a duty of care to make sure they are acting reasonably and prudently. Not following instructions could breach those duties.
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Fiduciary’s Decisions Harm the Principal or Beneficiaries
As mentioned above, fiduciaries have a duty of loyalty to their principal or beneficiaries. They should not act in ways that hurt the principal or beneficiaries directly. One example of an action that could harm beneficiaries is the trustee selling trust assets for below market value without a good reason. The beneficiaries will lose the assets and any income streams from them. Trustees have a duty of care to act reasonably when making decisions like selling trust assets. They should carefully investigate major decisions to determine the pros and cons. Anything less could be a breach of fiduciary duty.
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Conflicts of Interest
Finally, fiduciaries should take care to avoid conflicts of interest. If you learn that a fiduciary has engaged in self-dealing or made a decision that benefits both the principal and the fiduciary personally, you might have discovered a breach of fiduciary duty. Conflicts of interest arise when a fiduciary places his own personal interests or the interests of his family members and friends above the required loyalty to the principal. A transaction that seems like it presents a conflict of interest could be a warning sign.
We’re Here to Help with Breach of Fiduciary Duty Claims
At Henke & Williams, LLP, we handle breach of fiduciary duty claims for various types of clients. Our experienced Houston-based team assists clients with evaluating potential claims, determining options, and discussing possible outcomes. Our advice is not “one-size-fits-all,” but is tailored to your unique situation. To learn more, call 713-940-4500 or use our convenient Contact Form.