New York, NY securities attorney Jenice L. Malecki talks about the difference between a breach of fiduciary duty and a breach of contract. She notes that contract law and breach of fiduciary duty are closely related. A contract is any agreement between two parties, such as an agreement for discretionary management of an investment account. In that context, the broker or investment advisor would act as a fiduciary. Breach of contract could occur in numerous ways—for example, if there is an agreement not to invest in a specific company and the broker or advisor violates that agreement. Such agreements, even if documented only in emails, are enforceable.

Fiduciary duties can arise from contracts but also from statutory obligations. The Investment Advisers Act of 1940 establishes a fiduciary duty between a client and a registered investment advisor, and state “blue sky” laws often impose similar duties. In contrast, ordinary brokerage agreements may not automatically create a fiduciary duty. However, the duty can develop based on how the advisor and investor interact. Brokerage relationships are now guided by the “best interest” standard, and Regulation Best Interest, effective since June 2020, provides a legal framework similar to a fiduciary duty, though it is not exactly the same.