Fiduciary duty in Banking
As a general rule, the law states that banks do not owe a fiduciary duty to customers. The existence of a fiduciary relationship between a banking institution and a customer as a consequence of the specific legal relationship between a bank and a customer. As such, the nature of the fiduciary relationship is pegged on the nature and characteristics of the relationship between a bank and the customer, as well as the circumstances leading up to the existence of the said relationship.
The breach of fiduciary duty is tantamount to a tort. Courts have designed and maintained a standard of determining the existence of a fiduciary relationship. The main question up for the court’s determination is the restatement of torts. Restatement of torts refers to a legal principle that assumes the existence of a fiduciary duty between two persons in the event that one of the parties is under an obligation to act on behalf of the other or to give advice intended for the benefit of another upon matters within the scope of their relationship.
Actions leading to the existence of a fiduciary relationship
In Raj’s case, the action of approaching ABG for savings and credit card facilities does not lead to the existence of a fiduciary relationship. However, a fiduciary relationship formed after Raj mentions to the bank officer that he would like some advice about investing his inheritance, and the bank officer acts on it by arranging an immediate appointment for him to discuss options with the bank’s financial planner Erica Smith.
The fact that during the meeting Raj mentions little about his personal circumstances is immaterial. Acting on the instructions of the financial planner Raj deposits his inheritance to the savings accounts at ABG, pending advice on investment opportunities available to him. The action of investing in the Australian managed investment scheme was informed by the Erica. The fact that she mentioned that the scheme specialized in investing in high-risk pharmaceutical and medical research is made inconsequential by Erica’s conclusion of encouraging, ‘This is a sure thing, and you can expect to make gains of 2 5% per year on this investment.
Rhoads v. Harvey Publications, 145 Ariz. 142, 149, 700 P.2d 840, 847, 1984 Ariz. App. LEXIS 632 (Ariz. Ct. App. 1984).
The principle, in this case, holds that banks do not owe fiduciary duties to depositors. The existence of fiduciary relationships demands the existence of a debtor-creditor relationship, business agency, a professional relationship or a family tie.
Investment co v bank: the principle, in this case, holds that the relationship between an investment company or agent and its customer is tantamount to a fiduciary relationship. Based on the preceding principle, an investment adviser is under a strict obligation to maintain a duty of care, loyalty, honesty, and good faith. Additionally, the adviser is under a further obligation of acting in the best interests of their client.
In the case of Raj, the actions of the investment adviser sought by the bank officer are tantamount to negligence, caused by failure to act in the best interest of their client, a breach of honesty and good faith.
Consequently, Raj can seek legal relief through the courts for the loss incurred as a result of the negligence of the investment advisor. He meets the locus standi to sue for damages and recovery of the lost amount.
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