§ 6.4.2 FINANCIAL PROFESSIONALS

• Jurisdiction: Arizona

§ 6.4.2 Financial Professionals

Investment advisers, stockbrokers, and similar securities professionals are a class of persons who, because of their professional status and superior knowledge, may be subject to fiduciary duties. The existence of fiduciary standards is settled for trustees and money managers who exercise discretion in selecting investments for others.²⁰⁴³ But the relationship between securities brokers and their customers is less certain.²⁰⁴⁴

The existence of fiduciary duties and their range is necessarily situation-specific. The scope and nature of the relationship determines the need to impose fiduciary obligations.²⁰⁴⁵ The broker-customer relationship does not automatically create fiduciary duties, although the professional training and stature of the broker undoubtedly creates an elevated standard of care.²⁰⁴⁶ It is only when the power, influence, or knowledge arising out of the broker's agency creates information imbalances or special opportunities for dishonesty that fiduciary duties are appropriate.²⁰⁴⁷

Although the courts are not in harmony,²⁰⁴⁸ most, including the Arizona Supreme Court,²⁰⁴⁹ recognize that the existence of fiduciary duties depends upon the scope of the broker's agency. At one end of the spectrum, the broker may be a mere order taker executing the customer's unsolicited trades. At the other end, the broker may be an investment adviser or the manager for a discretionary account. A broker acting as an order clerk usually does not function as a fiduciary,²⁰⁵⁰ but if the broker undertakes the role of an adviser or account executive with discretionary authority, conventional fiduciary duties are appropriate.²⁰⁵¹ In between these poles are those professional relationships where the customer places special confidence or trust in the broker. Identification of these special relationships, and the fiduciary duties they create, usually requires a broad factual inquiry.²⁰⁵² Among the factors that have been found relevant are the degree of discretion, control, and trust in the relationship; the investor's sophistication; the broker's role as an adviser; the complexity and riskiness of the trades; and the customer's use of a third-party adviser.²⁰⁵³

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Notes:

^[2043] See SEC v. Zandford, 535 U.S. 813, 822-24 (2002) (discussing fiduciary duty of broker who manages investments in a discretionary account).

^[2044] For an especially insightful analysis of the customer-broker relationship, see Langevoort, Selling Hope, supra note...