Fiduciary Fraud

AAA

DEFINITION of 'Fiduciary Fraud'

Illegal practices committed by financial institutions and financial professionals that constitute a breach of trust between the financial agent and the client. Fiduciaries are legally (and ethically) obligated to act in a way that benefits the client. Fiduciary fraud occurs when a fiduciary acts in his or her own self interest to the detriment of the client.

INVESTOPEDIA EXPLAINS 'Fiduciary Fraud'

There are plenty of obvious cases of fiduciary fraud, including Ponzi schemes, churning and so on. However, there are cases where the line is difficult to draw. For example, just because an advisor makes poor investments - and collects commissions - doesn't necessarily mean he or she is guilty of fiduciary fraud. In these cases, good faith measures and the prudent person rule are often applied to measure the advisor's intentions.

RELATED TERMS
  1. Prudent Investor Rule

    A guideline that requires a fiduciary to invest trust assets ...
  2. Conflict Of Interest

    A situation where a professional, or a corporation, has a vested ...
  3. Prudent-Person Rule

    A legal maxim restricting the discretion in a client's account ...
  4. Fiduciary Abuse

    Describes a situation in which an individual who is legally appointed ...
  5. Fiduciary

    1. A person legally appointed and authorized to hold assets in ...
  6. Fiduciary Risk

    A type of risk that accounts for the possibility of a trustee/agent ...
RELATED FAQS
  1. What percentage of a diversified portfolio should large cap stocks comprise?

    The percentage of a diversified investment portfolio that should consist of large-cap stocks depends on an individual investor's ... Read Full Answer >>
  2. What are some high-profile examples of wash trading schemes?

    In 2012, the Royal Bank of Canada (RBC) was accused of a complex wash trading scheme to profit from a Canadian tax provision, ... Read Full Answer >>
  3. How does the trust maker transfer funds into a revocable trust?

    Once a revocable trust is created, a trust maker transfers funds or property into the trust by including them in a list with ... Read Full Answer >>
  4. Why should an investor include an allocation to the telecommunications sector in ...

    An investor should include an allocation to the telecommunications sector in his portfolio, because telecom offers an investor ... Read Full Answer >>
  5. What are some mutual funds that do not have 12b-1 fees?

    Some of the most popular and best-performing mutual funds that do not include any 12b-1 fees in the expenses charged to fund ... Read Full Answer >>
  6. What is the difference between a revocable trust and a living trust?

    A revocable trust and living trust are separate terms that describe the same thing: a trust in which the terms can be changed ... Read Full Answer >>
Related Articles
  1. Brokers

    Top Broker Excuses For Poor Investments

    It is not uncommon for investors to lose money through misselling or other forms of mismanagement.
  2. Personal Finance

    4 History-Making Wall Street Crooks

    Find out how these Wall Street high-rollers landed themselves in hot water.
  3. Investing Basics

    The Pioneers Of Financial Fraud

    These fraudsters were the first to commit fraud, participate in insider trading and manipulate stocks.
  4. Professionals

    Standards And Ethics For Financial Professionals

    Scandals and fraud have given financial professionals a black eye. Learn how to avoid typical ethical dilemmas.
  5. Personal Finance

    4 Dishonest Broker Tactics And How To Avoid Them

    Protecting yourself from unscrupulous practices means knowing how to spot them.
  6. Options & Futures

    The Chinese Wall Protects Against Conflicts Of Interest

    After the crash of 1929, this barrier helped define ethical limits, but it did little to prevent fraud.
  7. Mutual Funds & ETFs

    Top 3 ETFs For Investing in Brazil

    Discover information and analysis of some of the most popular and best performing exchange-traded funds that offer investors exposure to Brazil.
  8. Insurance

    Tips for Insuring Your Salary

    Those with high incomes really can’t afford to be without disability insurance. Here's why.
  9. Investing

    Top Tips on Catering to Millennial Clients

    The economic impact of Millennials is rapidly growing. Here's how to reach them.
  10. Investing

    What Can A Conference Call Tell About Trends?

    Messages in a company conference call can be easily misconstrued. But there is a way to cut through the talking points to get to the real substance.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!