Fiduciary Fraud


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.

BREAKING DOWN '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.

  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 Negligence

    A professional malpractice in which a person fails to honor his ...
  6. Fiduciary Risk

    A type of risk that accounts for the possibility of a trustee/agent ...
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. Credit & Loans

    How to Recover From Identity Theft

    Identity theft isn't going away, and fixing it can take time and money. But doing nothing isn't an option. Rather than become a victim, it is time to take action.
  8. Budgeting

    Your Worst Financial Mistakes And Why You Made Them

    No one intends to make a financial mistake, but an unexpected disaster or poor planning could leave you in financial distress.
  9. Investing Basics

    Diversify with These Four Alternative Assets

    In times of market volatility, investors add alternative assets to their portfolios--highly illiquid, but profitable investments like art, land or precious metals.
  10. Investing

    Is it Time to “Buy” Inflation?

    Based on recent data from the Treasury-Inflation Protected Securities (TIPS) market, it would seem that most investors aren’t worried about inflation.
  1. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  2. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  3. Can your life insurance company sue you?

    A life insurance company generally cannot sue you, but it can sue your estate. The company may do this in order to recover ... Read Full Answer >>
  4. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  5. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  6. Does your car insurance company report accidents to the DMV?

    Your car insurance company does not generally report accidents to the Department of Motor Vehicles (DMV). However, depending ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
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!