Common examples of a breach of fiduciary duty include a corporate director steering a deal to a company they secretly own, a trustee borrowing from the trust or dumping all its assets into one speculative stock, a 401(k) administrator packing the plan with high-fee funds that pay the administrator revenue-sharing, an investment adviser churning a retiree’s account for commissions, a lawyer representing both sides of a dispute or dipping into a client trust account, and a real estate agent hiding a known defect from a buyer. Each one comes from a different corner of the law, but the pattern is the same: someone entrusted with another person’s money, property, or legal interests put their own interests first or failed to use reasonable care.
What Counts as a Breach
Every fiduciary relationship rests on two obligations. The duty of loyalty says the fiduciary cannot put their interests ahead of the person they serve. The duty of care says they must use reasonable skill and diligence when making decisions on that person’s behalf.1Legal Information Institute. Fiduciary Duty Fiduciaries are also expected to act in good faith, keep confidential information private, and disclose conflicts of interest before those conflicts taint a decision.
Honest mistakes are not breaches. What the law punishes is disloyalty, concealment, recklessness, or neglect so serious that no reasonable person in that position would have acted the same way. To recover, an injured party generally has to show the fiduciary owed them a duty, violated it, and caused harm.
Corporate Officers and Directors
Directors, officers, and managing members of LLCs owe fiduciary duties to the company and its owners. Self-dealing is the most recognizable breach: a director sells company assets to a business they personally own at below-market prices, or approves a vendor contract that quietly pays them a kickback.
The corporate opportunity doctrine bars officers and directors from taking a business opportunity the company could have pursued. Courts look at whether the opportunity fell within the company’s line of business, whether the company could have afforded it, and whether taking it created a conflict with the fiduciary’s obligations.2Legal Information Institute. Corporate Opportunity A director who learns about a promising acquisition target through board discussions and then buys it personally has crossed that line.
Excessive compensation is another form. When directors approve inflated salaries, bonuses, or severance packages for themselves or fellow officers without independent review, the process looks less like governance and more like self-enrichment. The problem isn’t generous pay but the absence of arm’s-length negotiation.
Trustees
Trustees manage property for someone else, and the opportunities for breach are wide.
Investment mismanagement violates the prudent investor rule, which requires a trustee to invest with the care, skill, and caution a prudent investor would use under similar circumstances.3Legal Information Institute. Prudent Investor Rule Concentrating all trust assets in a single speculative stock, ignoring obvious diversification needs, or letting cash sit idle for years while inflation eats away at it can all violate the standard. Professional trustees are held to a professional’s standard.
Self-dealing by a trustee shows up as borrowing from the trust, buying trust property for themselves at a discount, or selling their own property to the trust at an inflated price. Commingling is a closely related violation: mixing trust funds with personal accounts. Even if not a dime is stolen, commingling makes it nearly impossible to track what belongs to the trust.
Trustees also breach their duties by refusing or delaying distributions the trust document requires. If the trust says a beneficiary receives income quarterly, the trustee can’t withhold payments without a legitimate reason. Favoritism among beneficiaries is actionable too.
Retirement Plan Fiduciaries
Anyone who manages a 401(k), pension, or other employer-sponsored retirement plan is an ERISA fiduciary. Federal law requires them to act solely in the interest of participants and beneficiaries, for the exclusive purpose of providing benefits and covering reasonable plan expenses, using a prudent-person standard and diversifying investments to minimize the risk of large losses.4Office of the Law Revision Counsel. 29 US Code 1104 – Fiduciary Duties
ERISA’s prohibited transaction rules bar a plan fiduciary from using plan assets for their own benefit, acting for a party whose interests conflict with the plan’s, or receiving personal compensation from anyone dealing with the plan in connection with a plan transaction.5Office of the Law Revision Counsel. 29 US Code 1106 – Prohibited Transactions Real-world violations include selecting high-fee investment options because the plan administrator receives revenue-sharing payments, failing to monitor and replace consistently underperforming funds, and letting the employer use plan assets for company purposes.
A fiduciary who breaches these duties faces personal liability. They must restore any losses the plan suffered and give back any profits earned through misuse of plan assets. Courts can also order removal.6Office of the Law Revision Counsel. 29 US Code 1109 – Liability for Breach of Fiduciary Duty Plan participants, beneficiaries, the Department of Labor, and co-fiduciaries can all bring these suits.7Office of the Law Revision Counsel. 29 US Code 1132 – Civil Enforcement
Investment Advisers and Brokers
The financial industry creates confusion because two types of professionals operate under different standards. Registered investment advisers owe a true fiduciary duty under the Investment Advisers Act of 1940 and must serve their clients’ best interests at all times.8U.S. Securities and Exchange Commission. Commission Interpretation Regarding Standard of Conduct for Investment Advisers Broker-dealers are subject to Regulation Best Interest, which requires them to act in a retail customer’s best interest at the moment of a recommendation but does not impose an ongoing fiduciary obligation.9eCFR. 17 CFR 240.15l-1 – Regulation Best Interest An adviser’s duty covers the entire relationship; a broker’s kicks in at the recommendation.
Unsuitable Recommendations and Churning
Recommending investments that don’t match a client’s risk tolerance, financial goals, or time horizon is one of the most frequent breaches. Steering a retiree living on fixed income into volatile, speculative investments is a textbook example. The more extreme version is churning, where a financial professional drives excessive trading to generate commissions. FINRA distinguishes between excessive trading that merely fails to align with a client’s goals and churning that rises to fraud through intentional or reckless disregard for the client’s interests.10FINRA. 3 Ways to Guard Against Excessive Trading in Your Brokerage Account
Undisclosed Conflicts of Interest
Investment advisers must disclose all material conflicts through Form ADV, giving clients enough detail to consent or walk away.11U.S. Securities and Exchange Commission. Form ADV Part 2 – Uniform Requirements for the Investment Adviser Brochure That covers commissions earned from recommending specific products, performance-based fee arrangements that create incentives to favor certain accounts, and financial relationships with broker-dealers or insurance companies. An adviser who earns commissions from a fund company for recommending its products and doesn’t tell clients has breached the disclosure obligation, even if the recommendation itself was reasonable.
Attorneys
Lawyers owe fiduciary duties to every client, and conflict of interest is the most common breach. Professional conduct rules bar a lawyer from representing a client when the representation would be directly adverse to another current client or when the lawyer’s own interests could materially limit their judgment.12American Bar Association. Model Rules of Professional Conduct Rule 1.7 – Conflict of Interest Current Clients Representing both sides in a business dispute, or quietly investing in a company while advising a client to sell their stake in it, destroys the trust the relationship depends on.
Mishandling client funds is treated as one of the most serious violations. Lawyers who receive client money must keep it in a separate trust account, not their personal or business accounts.13American Bar Association. Model Rules of Professional Conduct Rule 1.15 – Safekeeping Property Borrowing from that account, even briefly, or failing to keep proper records is grounds for discipline up to disbarment. Sharing privileged information without consent is similarly damaging.
Real Estate Agents
Real estate agents owe fiduciary duties to whichever party they represent. The single most common claim is failure to disclose material property defects. When an agent knows about structural problems, water damage, environmental hazards, or other significant issues and doesn’t tell the buyer, the agent has breached the duty of disclosure. Studies suggest a majority of sellers admit to withholding at least one known problem from buyers, which means agents who don’t independently verify and disclose are stepping into liability on a regular basis.
Misrepresentation goes a step further, with the agent actively providing false or misleading information, like exaggerating square footage or downplaying flood risk. Secret profits are another breach: undisclosed referral fees, kickbacks, or side payments from contractors or lenders violate the duty of loyalty.
Dual agency, where one agent represents both buyer and seller, creates an inherent conflict. Some jurisdictions allow it with informed written consent from both parties, but an agent who slips into a dual role without clear disclosure and agreement has breached the duty to each client.
Remedies Available to the Injured Party
Remedies depend on the type of fiduciary relationship and the severity of the misconduct, but several options appear across most contexts.
- Compensatory damages recover the financial losses caused by the breach. If a trustee’s reckless investment strategy lost $200,000 of trust value, the trustee personally owes that amount to the trust.
- Disgorgement of profits forces the fiduciary to hand over any personal gains earned through the breach, even if the injured party can’t prove they lost that exact amount.
- A constructive trust lets a court declare that property acquired through a breach is held in trust for the injured party, effectively transferring it back.
- Injunctive relief can freeze assets, block transactions, or order a fiduciary to stop specific conduct while litigation proceeds.
- Removal takes a breaching trustee, plan fiduciary, or corporate officer out of the role. Under ERISA, removal is explicitly authorized.6Office of the Law Revision Counsel. 29 US Code 1109 – Liability for Breach of Fiduciary Duty
- Punitive damages are available in some jurisdictions when the fiduciary acted with malice, fraud, or reckless indifference. Most courts require clear and convincing evidence of intentional misconduct.
The remedies stack. A single breach can produce compensatory damages, disgorgement, and removal at once. In attorney cases, fee disgorgement is particularly common because courts reason that a disloyal lawyer never earned the fee in the first place.
Deadlines to Sue
Fiduciary breach claims are subject to statutes of limitations, and missing the deadline can permanently bar the claim regardless of its strength. For most non-ERISA fiduciary breach claims, the filing window is typically three to four years, though this varies by jurisdiction and the type of relationship.
ERISA claims follow their own federal timeline. A lawsuit must generally be filed within six years of the last act constituting the breach. That window shrinks to three years if the participant had actual knowledge of the breach. In cases involving fraud or concealment, the six-year clock doesn’t start until the participant discovers the violation. The Supreme Court has held that simply receiving a disclosure document doesn’t count as actual knowledge if the participant didn’t actually read or recall the information in it.
The discovery rule matters across all fiduciary claims. Because breaches often involve concealment or complex financial transactions, courts in many jurisdictions don’t start the clock until the injured party knew or reasonably should have known about the breach. A trustee who hides self-dealing through opaque accounting doesn’t get to benefit from a limitations defense built on their own secrecy. Courts still expect reasonable diligence, though, and willfully ignoring red flags won’t extend the deadline indefinitely.