The Most Common Forms of Breach of Fiduciary Duty (And What to Do)

Breaches of fiduciary duty are unfortunately common. Since the fiduciary duty is the highest legal standard of care, however, there are severe consequences for a breach of fiduciary duty. With the help of an investment loss recovery attorney, you can hold the fiduciary accountable for his or her misconduct. What Is a Fiduciary Duty? A fiduciary is a person entrusted to act in the best interests of another (i.e. the principal). Once the fiduciary agrees to the relationship, the fiduciary is bound by a set of legal and ethical obligations, known as fiduciary duties.  In general, all fiduciaries owe a duty of loyalty and a duty of care. Some fiduciaries will owe additional duties based on the relationship and the industry in which they are in.  The duty of loyalty requires fiduciaries to act in the best interest of the principa, avoid any conflicts of interest, and refrain from self-dealing. The duty of care means the fiduciary must make informed decisions based on all information available.  Fiduciary Duties of Financial Advisors  While all financial advisors have a duty of care to their clients, only registered advisors have a fiduciary duty. It is important to know whether your financial advisor is registered with the U.S. Securities and Exchange Commission (SEC) or a state securities regulating agency. Financial advisors who are not registered can make investments that benefit them, as long as the investment is within your stated objectives. A registered financial advisor, on the other hand, can invest only if it is in your best interest. For registered financial advisors, the fiduciary duties owed vary by state. However, the following fiduciary duties apply to all registered financial advisors in all states Duty to Recommend Suitable Investments Prior to recommending an investment, the financial advisor must study and understand the investor’s objectives, tax status, and financial situation, among other things. Any investments that the financial advisor recommends must be suitable to the investor’s needs.  Duty to Inform Investor A financial advisor must fully inform the investor of the risks associated with the purchase or sale of a security. The advisor cannot misrepresent any material facts regarding the transaction. Duty to Act Promptly and with Authorization  All client orders must be performed promptly and with investor’s express consent. The advisor must obtain separate authorization for each investment unless the investor has a discretionary account.  Duty to Refrain from Self-Dealing  A financial advisor cannot initiate a transaction where he or she personally benefits. Duty to Avoid Conflicts of Interest For any recommendations made after June 30, 2020, financial advisors have a fiduciary duty to avoid any conflicts of interest. If unavoidable, the advisor must disclose the conflict to the investor.  What Constitutes a Breach of Fiduciary Duty? A breach of fiduciary duty occurs when the fiduciary fails to act in the best interest of the principal. This can happen through an intentional act or failure to act.  There are four elements to a valid breach of fiduciary duty claim. Duty A fiduciary relationship must exist for the fiduciary to owe a duty. You must show that the fiduciary knowingly accepted that role to hold them to the fiduciary standard of care. This is typically shown through a written agreement between the parties, such as a customer agreement. Breach The fiduciary must act contrary to your best interests. A breach of fiduciary duty can be shown through deliberate acts, such as making decisions on your behalf without consent. You can also prove a breach through the fiduciary’s failure to act—for example, not disclosing a conflict of interest.  Damages You must suffer actual harm or damages from the fiduciary’s breach. Proving there was a breach is not enough for a valid claim of breach of fiduciary duty. Damages can be either economic or non-economic, such as mental anguish.  Causation There must be a direct causal link between the fiduciary’s breach and harm to you. Despite your damages, if they are unrelated to the fiduciary’s misconduct or an unforeseeable result of the breach, you cannot recover your losses.  What Are Common Forms of Breach of Fiduciary Duty? Below are just a few examples of how a financial advisor can breach his or her fiduciary duty. In each instance, the fiduciary fails to act in the best interest of the investor. Misrepresentation or Failure to Disclose Information If a financial advisor does not present a client with all material information about an investment, this is a breach of fiduciary duty. Material information is what a reasonable investor would consider important when deciding whether to invest.  Sometimes financial advisors will mislead investors by omitting information, such as risk factors or any negative information about a stock.  Excessive Trading Excessive trading, also known as churning, in your account is a breach of fiduciary duty. Financial advisors will make large numbers of trades solely to generate more commissions for themselves.  Unsuitable Investments Financial advisors must “know their customer” before making investment recommendations. This includes understanding the client’s investment objectives, risk tolerance, time horizon, financial standing, and tax status. The advisor breaches their fiduciary duty if they make an unsuitable investment, even with the best intentions.  Failure to Diversify Your financial advisor must recommend a mix of investments so that your assets are properly allocated among various asset classes and industries. Failing to diversify your portfolio puts you in a position of great risk and is a breach of fiduciary duty. If your assets are over-concentrated in a particular stock or sector, you may experience significant losses if the company or industry does not perform well.  Failure to Follow Instructions When you give instructions to your financial advisor, they have the fiduciary duty to promptly perform your orders. If your advisor fails to follow your instructions in a timely manner and you suffer financial losses, you can recover.  What To Do If Your Financial Advisor Breached a Fiduciary Duty If you lost money at the hands of your financial advisor, there are several potential courses of action. An experienced investor loss recovery attorney can walk you through the different options and...

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What Is Financial Advisor Malpractice?

As an investor, you expect your financial advisor to properly manage your investment portfolio. Unfortunately, this is not always what happens. Financial advisors owe their clients certain obligations with respect to their investment accounts. Failure to adhere to these obligations can result in a claim for financial advisor malpractice. In certain circumstances, the financial fraud committed by your financial advisor will be obvious. For example, if your financial advisor forged your signature on a document, he or she clearly committed misconduct. However, most financial malpractice claims are not this straightforward.  The investment loss recovery attorneys at The Law Offices of Robert Wayne Pearce, P.A., have helped hundreds of investors recover losses caused by financial advisor malpractice. Contact us today for a free consultation. What Are My Financial Advisor’s Obligations and Duties to Me?  Registered financial advisors must adhere to certain fiduciary duties, or obligations, with respect to their clients. Financial advisors who are not registered and are not making securities recommendations to retail customers still owe their clients certain obligations, but they are not as stringent as fiduciary duties. Fiduciary Duties Registered investment advisors are bound by fiduciary duties to their clients. The Investment Advisers Act of 1940 defines the role and responsibilities of investment advisors. At its core, the purpose of this act was to protect investors.  A financial advisor owes their client a duty of care and a duty of loyalty. The Securities and Exchange Commission (SEC) interprets these fiduciary duties to require a financial advisor to act in the best interest of their client at all times. The SEC provides additional guidance for each fiduciary duty specifically. The duty of care requires that an investment advisor provide investment advice in the client’s best interest, in consideration of the client’s financial goals. It also requires that a financial advisor provide advice and oversight to the client over the course of the relationship. The duty of loyalty requires an investment advisor to disclose any conflicts of interest that might affect his or her impartiality. It also means that the financial advisor is prohibited from subordinating his or her client’s interests to their own. The Suitability Rule Broker-dealers in the past were subject to less demanding obligations.  The Financial Industry Regulatory Authority (FINRA) regulates broker-dealers in the United States. FINRA previously imposed a suitability obligation on broker-dealers that only required them to make recommendations that were “suitable” for their clients.  Under the suitability rule, a broker-dealer could recommend an investment only if it was suitable for the client in terms of the client’s financial objectives, needs, and risk profile. Broker-dealers did not owe a duty of loyalty to their clients and did not have to disclose conflicts of interest.  Recently, however, FINRA amended its suitability rule. Regulation Best Interest FINRA recently amended its suitability rule to conform with SEC Regulation Best Interest (Reg. BI), making it clear that stockbrokers now uniformly owe certain heightened duties when making recommendations to retail customers.  As with fiduciary duties, under Reg. BI, all broker-dealers and their stockbrokers now owe the following duties:  Disclosure,  Care,  Conflicts, and  Compliance.  However, it’s important to remember that they owe these duties only when they make recommendations regarding a securities transaction or investment strategy involving securities to a retail customer.  While these changes are still new, one thing is certain—the Reg. BI standard is definitely a heightened standard compared with the previous suitability standard.  Forms of Financial Advisor Malpractice Investors usually hire financial advisors because they do not have experience in investing. With this lack of experience, how can an investor know when a financial advisor is committing malpractice? There are several ways financial advisors can commit financial malpractice. Lack of Diversity Financial advisors have a duty to ensure your investment portfolio is properly diversified to include a variety of investment assets. That may include a mixture of stocks, bonds, or mutual funds in multiple different sectors.  A portfolio that lacks diversification is likely to result in significant losses to the client in the event of a market downturn in a specific sector. If you believe your financial advisor failed to properly diversify your portfolio, contact an investment loss recovery attorney today. The attorneys at The Law Offices of Robert Wayne Pearce, P.A., have significant experience handling these types of cases and will ensure the financial advisor responsible for your losses is held accountable.  Your Investments Are Unsuitable Every investor is unique. That means financial advisors must consider the specific goals and needs of each individual client before recommending investments. A financial advisor must consider a client’s risk tolerance when recommending investments. Risk tolerance refers to an investor’s willingness to endure losses in the financial market. For an aggressive investor, a financial advisor might recommend a risky investment that has a better possibility of high returns. The same recommendation would be unsuitable for an investor with a low risk tolerance. If your financial advisor recommended investments that you believe are unsuitable, contact the Law Offices of Robert Wayne Pearce to have your case reviewed by an experienced investment losses attorney. Your Investment Advisor Is Excessively Trading Excessive trading, sometimes called churning, occurs when a financial advisor buys and sells stocks excessively with the goal of generating commission fees. Churning is prohibited by the SEC. Investors should frequently review their account statements to ensure that the number of trades in their account does not increase drastically. If your financial advisor has been excessively trading in your investment account, reach out to an attorney as soon as possible to prevent further losses.  Financial Advisor Negligence In some cases, your financial advisor may seem like he or she is doing nothing at all. The financial advisor could be focused on other clients or on personal matters. Regardless of the reason, this behavior is not appropriate. A financial advisor may be guilty of malpractice for failing to give the appropriate amount of attention to a client.  Client Testimonials The Law Offices of Robert Wayne Pearce, P.A., has been representing investors in disputes against...

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What To Do if You Believe Your Financial Advisor is Stealing Your Money (Step by Step)

Financial advisors are highly trusted professionals who help make decisions that impact your economic future. When that trust is broken through a bad or negligent act, the investor suffers and the financial advisor must be held accountable. If you believe your financial advisor stole your money, there are several options for you to recover.  The Fiduciary Duty All financial advisors are held to a standard of care when dealing with investors. Registered financial advisors have a higher fiduciary duty to their clients under the Investment Advisers Act of 1940. This is the highest legal standard of care and requires financial advisors to act in the best interest of their clients, make suitable investments, and disclose relevant information to you.  Knowing whether your financial advisor is registered with the U.S. Securities and Exchange Commission (SEC) or a state securities regulator is important because if the advisor breaches the fiduciary duty, you can bring a claim against the financial advisor through the Financial Industry Regulatory Authority (FINRA). FINRA is the governing organization that creates and enforces rules for advisors and their firms and assists in resolving disputes between advisors and investors.  Do You Have a Claim? If your financial advisor outright stole money from your account, this is theft. These cases involve an intentional act by your financial advisor, such as transferring money out of your account. However, your financial advisor could also be stealing from you if their actions or failure to act causes you financial loss.   Losing money through an investment is not enough to bring a claim against your financial advisor. Remember, there is no guarantee of return when investing. Even if your financial advisor made the recommendation, under federal securities law and FINRA regulations, you cannot hold your advisor liable simply because they lost you money. You need a viable cause of action, such as a breach of fiduciary duty, negligence, or malpractice. Types of Claims Against Your Financial Advisor  Understanding securities law and FINRA regulations is crucial to knowing whether you have a valid claim against your financial advisor. The investment loss recovery attorneys at The Law Offices of Robert Wayne Pearce P.A. have over 40 years of experience in securities and investment law. They have helped countless investors recover their financial losses caused by bad or negligent acts by their financial advisor. The Law Offices of Robert Wayne Pearce P.A. have handled hundreds of cases involving many types of misconduct by financial advisors. Negligence In a negligence claim, you do not need to show that the financial advisor intentionally acted in a harmful way, but rather that the advisor failed to do something they had an obligation to do and caused economic loss. For example, your advisor may have made an unsuitable investment by failing to take into consideration your risk tolerance. If you lost money based on the recommended investment, it may be appropriate to file a claim for negligence against your financial advisor.  Breach of Fiduciary Duty A financial advisor who breaches his fiduciary duty has failed to meet the required standard of care. You may have a valid claim for breach of fiduciary duty if your advisor failed to execute your stated objectives or did not disclose information about a product. Other examples of breaching the fiduciary duty include: Unauthorized trading, Unsuitable investments,  Undiversified portfolio, and  Account churning.  In each of these instances, the financial advisor did not act in your best interest.  Failure to Supervise A brokerage firm is responsible for supervising the actions of its financial advisors and any other employees. If the firm fails to do this, it can be held liable for your financial losses.  What You Can Do There are several stages of resolution to recover your financial losses. Depending on the facts of your case, you may be able to resolve it and recover without any formal proceedings, or you may have to litigate. The attorneys at The Law Offices of Robert Wayne Pearce P.A. have helped investors in all stages and have successfully recovered over $125 million in losses for our clients.  Review Customer Agreement If you believe your financial advisor stole money from you, either directly or indirectly through losses in your account, you should first review your customer agreement. Understand what sort of authority you gave your financial advisor and if there is a mandatory arbitration clause. This clause is common in most customer agreements with brokerage firms. These clauses often state that you waive your right to file a lawsuit against your advisor and agree to engage in a FINRA arbitration proceeding instead.  Informal Dispute Resolution Claims against financial advisors are incredibly complex legal matters. There are informal options available, however. Even at this stage you should contact an investor loss recovery attorney for assistance. FINRA, which regulates the investment industry, instructs investors to first pursue informal dispute resolutions before filling a claim against their financial advisor.  Depending on the severity of the financial advisor’s misconduct, you may be able to resolve the matter directly with your advisor or the firm’s compliance department. If this is not suitable or you fail to come to a resolution, the next stage is participating in voluntary, non-binding mediation.  FINRA Mediation Mediation is a voluntary process that involves a neutral third party who assists in reaching a mutually agreeable solution. FINRA offers a forum for advisors and investors to mediate. This option is faster and less expensive than arbitration and litigation. Four out of five cases mediated by FINRA are resolved. If you fail to reach a satisfactory solution through mediation, you still have the right to arbitrate or litigate.   FINRA Arbitration Arbitration is more like a traditional legal proceeding in that an impartial party or panel hears arguments from both sides, analyzes the facts and evidence, and makes a final, binding decision. If you choose arbitration or are required to arbitrate under your customer agreement, you forfeit your right to file a lawsuit. Courts of law can review an arbitration award for fairness, but typically they...

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Securities & Exchange Commission Complaint: How to Report Your Broker Anonymously

Your investments are important—that’s why so many individuals hire investment brokers and financial advisors to manage their investment accounts.  Having a qualified broker can be a great advantage to the growth of your investments. Unfortunately, however, investment and securities fraud remains a common and serious issue in the United States each year. So what do you do if you are a victim of investment fraud at the hands of your broker?  The U.S. Securities and Exchange Commission (SEC) has a mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. In furtherance of this goal, the SEC allows individual investors to file complaints against their broker or their broker’s firm. If your broker committed negligence or broker fraud, you may be entitled to file a complaint and recover your losses. Violations of securities law can be reported to the SEC, which will conduct a comprehensive investigation.  Looking for information on how to file a complaint against a broker? Look no further than the Law Offices of Robert Wayne Pearce, P.A. Not only can our attorneys help you report your broker, but we can also help you recover your investment losses.  Filing a complaint against your broker with the SEC can be a great way to hold them accountable and put future investors on notice of their wrongdoing. However, doing so doesn’t necessarily help you get your money back. Contacting an attorney, however, can be the first step toward actually recovering your personal investment losses that you suffered at the hands of your broker.  Stockbroker fraud attorney Robert Wayne Pearce has over 40 years of experience handling complex securities, commodities, and investment arbitration and litigation cases. He has helped countless clients through their investment-related disputes, and he will fight to do the same for you. Why Would I File a Complaint? There are numerous reasons you may need to file a complaint with the SEC against your broker. Common examples of wrongful actions by a broker or brokerage firm include: Offering fraudulent or unregistered securities;  Misappropriating client funds; Insider trading; Making false or misleading statements; and Failing to file required reports with the SEC. Of course, not all actions by a broker constitute fraud for which you can file a complaint with the SEC. Remember, the stock market is inherently volatile, so the fact that you lost money does not necessarily mean your broker took any wrongful actions.  An experienced investment fraud attorney can help you determine whether filing a complaint with the SEC against a broker might be warranted. Filing a Complaint with the SEC Against a Broker: What You Need to Know If you suffer financial losses due to the negligence or misconduct of a broker or brokerage firm, filing a complaint with the SEC against the broker can be an important step to take.  Not only can this help prevent future investors from being subject to the same fraudulent and predatory actions, but it may also provide you with an avenue to recover your losses. How to File a Complaint Against a Broker The first step in reporting your broker for fraud or misconduct is to file your formal complaint with the SEC.  The SEC provides an opportunity for members of the public at large to submit broker complaints electronically using the SEC’s Investor Complaint Form.  What to Include in Your Complaint The Investor Complaint Form may appear simple to complete. However, there is more to it than you might think.  The form requires basic information such as: Your name and address; Basic information about your broker; The type of investment involved; A brief description of the events giving rise to your complaint; and Any actions you may have already to resolve your complaint against your broker, such as mediation, arbitration, or court action. The complaint form can play a vital role in whether the SEC allows your case to move forward. Thus, the more information you are able to provide, the better equipped the SEC will be to investigate your complaint. An experienced investment fraud attorney can be a great benefit to you as you complete your Investor Complaint Form and move forward in the process.  What Happens After Submitting My Complaint After the SEC receives your complaint, they will thoroughly investigate your claim and all relevant evidence.  Central to the process is confidentiality. The SEC conducts its investigations in a manner that will protect the parties and preserve the integrity of the complaint process.  Then, depending on the allegations asserted in your form, the complaint will be referred to the appropriate SEC office. The Office of Investor Education and Advocacy The Office of Investor Education and Advocacy handles basic investor questions regarding securities law and complaints related to financial professionals. These SEC officers will also advise complainants of possible remedies and, in some cases, will intervene on your behalf and reach out to brokers or other financial advisors concerning the issues raised in your complaint. This office may also refer your complaint to another division of the SEC for resolution. Enforcement Division The Division of Enforcement, on the other hand, employs attorneys to review information and tips regarding securities law violations.  Officers in this office investigate the claims in their entirety, retrieving whatever evidence may be necessary. Again, it is important to note that the investigations conducted by the SEC are typically confidential unless made a matter of public record.  After completing a thorough investigation, the Enforcement Division may recommend that the SEC bring civil actions in federal court or before an administrative law judge to prosecute securities law violations.  Why Hire an Investment Loss Attorney to Assist with Complaints Against Your Broker? Reporting the fraudulent misconduct of a broker to the SEC is important. However, filing an SEC complaint is not the only way to hold a broker or brokerage firm accountable.  In fact, in some cases, filing an SEC complaint may not be enough to get you the compensation you need to recover from your investment losses. In these cases,...

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The Most Common Types of Investment Frauds (and How to Take Action)

Consult a Highly-Experienced and Dedicated Investment Fraud Attorney to Learn How to Protect Your Rights If You Suspect Your Broker or Financial Planner of Fraud Hiring a reputable investment advisor is frequently a wise decision. You did things right by hiring someone you thought you could trust, but you still lost money. Knowing more about types of investment frauds could help you understand what you need to do. A skilled investment loss attorney could investigate your situation and determine if you are the victim of investment fraud.  At the Law Offices of Robert Wayne Peace, P.A., we devote our extensive experience and advanced skill to protecting investors who fell prey to unscrupulous investment professionals. Contact us today to learn more about how we can help hold your financial advisors accountable for fraud or malpractice. Investment Fraud is More Pervasive Than You Think Your story is probably like many others. You have worked hard and saved money to plan for your future. So instead of “playing the market” yourself, you engage a financial advisor to help protect your nest egg.  You probably felt at ease with your decision to hire a financial advisor.  Your financial advisor is a fiduciary, and, accordingly, they owe you a duty of care. This is someone you believe you can trust with your savings and rely on to make the right decisions for you and your family. Most financial advisors are honest, hardworking, and caring professionals who try their best for their clients. Notwithstanding their strict ethical rules, some investment advisors cannot resist the temptation of making money the easy way.  How Do You Know If You’re the Victim of Some Type of Investment Fraud? Everyone knows the old saying that “if it’s too good to be true, it probably is.” This adage still pertains to investment opportunities even today. Many fraudulent schemes perpetrated by dishonest financial advisors lure unsuspecting investors into their trap with some type of “get rich quick” scheme. We will examine five types of investment fraud commonly employed by shady financial advisors. Promissory Note Fraud If you have ever bought a home or a car and financed the transaction, you probably understand the significance of a promissory note. Buying and selling promissory notes is a sophisticated investment strategy. Your advisor must adhere to the strict regulations enforced by the U.S. Securities and Exchange Commission (SEC) when transferring promissory notes. Promissory notes might seem like a worthwhile investment. The deal allows you to hold the note and receive interest payments as well as repayments on the principal. You might have purchased the note for a discount, which increased your potential return. Investing in promissory notes, especially short-term notes, is extremely risky. Short-term notes offer higher than market interest rates and the allure of making a substantial amount of money quickly.  Promissory note scams prove to cost private investors millions of dollars. The seller of the note has no responsibility to register short-term notes with the SEC. Therefore, small investors cannot research the viability of these notes, the historical performance of similar notes, and whether the dealer has a good reputation.  Investors accept some risk. However, investors could get wiped out if they invest in promissory notes without proper guidance from a reputable financial advisor. Small or retail investors may not have any recourse against the party who defaults on a promissory note.  They have other options, however. Private investors like you could file a lawsuit against your financial advisor from fraud if they misrepresented or lied about the investment’s inherent risk, its return, or any other material fact concerning the promissory note. Proving fraud is difficult. That is why you need a strong legal advocate for individual investors.  Ponzi and Pyramid Schemes Ponzi schemes always fail. Yet, people still use them as a way to make easy money. Ponzi schemes always fail because the person running the scam will always run out of money.  The average investor might not identify a Ponzi scheme if it is well disguised. However, suppose you have given money to someone to invest, and there are no underlying assets in the fund, or you are asked to recruit others to join in the initial investment. In that case, you might be unwittingly involved in a Ponzi scheme.  Pyramid or multi-tiered marketing strategies are a similar investment tactic. Pyramid schemes are not inherently unlawful like Ponzi schemes. Notwithstanding, participants in multi-tiered marketing schemes often get swindled out of their money because they continue to invest, with little or no return, based on a promise that they will reach the top of the pyramid.  Like Ponzi schemes, a fraudulent pyramid scheme offers no legitimate underlying investment. On the other hand, some legitimate multi-tiered marketing programs sell consumer goods or other products.  Pyramid schemes are not investment groups or pooled funds. Pyramid schemes operate on the premise you make money based on the number of participants you recruit.  Suppose you or a loved one believes they have lost money because an investment advisor conned you into thinking that you could earn a good return by investing in a strategy that does not involve assets. In that case, you should talk with an investment attorney right away. Investing in Real Estate In America, we are conditioned to believe that the real estate market always goes up. As a result, real estate investing could be a vital component of a diversified portfolio. However, flipping houses, buying distressed properties, or becoming a landlord is not for everyone. Unprepared people could lose their shirts because of bad real estate investments. They have bad tenants, underestimate the rehab costs of a home, or overestimate their return when trying to sell and lose their investment. Moreover, they might end up in debt after making a bad deal. Buying and flipping houses are not the only way to make a living in real estate. Beware if your financial advisor asks you to participate in financing real estate deals that do not involve banks. This is known as “hard-money...

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Things You Need To Know About a Securities Lawyer

Securities are financial instruments that can offer promising opportunities for investors to earn income and profit upon sale. Securities come in a variety of forms, including: Stocks, Options,  Municipal (government) bonds, Corporate bonds, Mutual Funds, Closed-End Funds, Promissory Notes, Real Estate Investment Trusts (REITs), and Exchange Traded Funds (ETFs). But investment losses are a possibility no matter what type of security you invest in. Some securities are more inherently risky than others. Because of the complexities of securities, investors often seek out experienced financial advisors or brokers to handle their investments. Investors expect their advisors to provide honest, transparent advice and to act in a way that serves the client’s best interests. Unfortunately, that is not always what happens.  If you have suffered investment losses due to the actions of a financial advisor, contact a securities lawyer today. You might be wondering, What does a securities lawyer do? The answer is simple—a securities lawyer can be an advocate in your corner who will help you fight for your rights in the aftermath of your investment losses.  Securities lawyer Robert Wayne Pearce has decades of experience helping investors recover. Call The Law Offices of Robert Wayne Pearce, P.A., today to discuss your case.  Why Would I Need a Securities Lawyer? When a financial advisor’s misconduct results in financial losses to their client, the financial advisor may be liable for securities fraud. However, suffering losses does not automatically entitle you to compensation. Investing is inherently risky, and success is never a guarantee. So what forms of misconduct amount to investment fraud? Knowing the most common types of investment fraud claims brought by investors is a good place to start. Breach of Fiduciary Duty Registered investment advisors are held to a fiduciary duty standard when it comes to serving their clients. Being a fiduciary essentially means that you have a legal duty to act in your client’s best interest. In some cases, a breach of fiduciary duty is easy to recognize. For example, if an investment advisor only recommends products that will generate the highest commission fees, they are putting their interest in gaining commissions over their client’s interest. However, a breach of fiduciary duty is not always so easy to recognize. Other ways a fiduciary can violate his or her duties include: Failure to disclose material facts; Commingling of investment funds; Failure to disclose conflicts of interest; Usurping an investment opportunity; and Misappropriation of client funds.  The fiduciary standard is the most stringent standard of care in American law. However, not all investment professionals must comply with this standard. The Investment Advisors Act of 1940 mandates that registered investment advisors adhere to the fiduciary standard. Other types of advisors may have more limited fiduciary duties.  Failure to Supervise Brokerage firms are responsible for the conduct of their securities representatives. FINRA Rule 3110 requires registered brokerage firms to establish and maintain a “reasonably well-crafted system” to supervise its representatives, so the firm can ensure compliance with securities laws and regulations. Some of the most common failure to supervise claims include: Inadequate screening practices; Inadequate training of representatives; Failure to install appropriate written supervisory procedures; Failure to follow up on suspected misconduct; Lack of sufficient reviews and inspections; Failure to effectively monitor transactions; and Failure to effectively monitor registered representatives’ communication.  Brokerage firms who fail to adequately supervise their representatives open the door for their customers to be taken advantage of. If you believe your representative was not being properly supervised, contact a securities lawyer today to discuss your case.  Fraud or Misrepresentation You need access to all relevant information about a security before you can make an informed decision on whether to invest. Thus, a financial advisor must disclose all relevant information when presenting you with an investment opportunity.  The failure to disclose material information about an investment is a form of investment fraud. If your broker or financial advisor failed to disclose information material to an investment opportunity, contact a securities lawyer to discuss your claim. Unauthorized Trading A broker or financial advisor must have valid authorization before effectuating a transaction in your investment account. You can grant authorization to your advisor in two ways: Open a discretionary trading account; or Grant express authorization for each individual trade. A discretionary account permits your broker to make trades in your account at his or her discretion, within the parameters you allow.  Otherwise, express authorization must be given for each individual transaction made in your investment account.  Excessive Trading Excessive trading, also known as churning, occurs when an investment professional makes repeated trades in a client’s account for the sole purpose of generating commissions. Churning is most common in discretionary accounts because investors might show alarm if their investment professional is seeking trade authorization repeatedly.  Making excessive trades is not a good investment strategy and often results in significant losses for investors. If your financial advisor or broker is repeatedly buying and selling securities in your account to drive up their commissions, contact a securities lawyer today.   Lack of Diversification An ideal investment portfolio contains multiple types of securities in a variety of sectors. This minimizes the risk of suffering significant losses if one sector of the stock market tumbles.  A failure to diversify a client’s investment portfolio is a form of investor fraud. If you suffered investment losses because your portfolio was over-concentrated, you may be entitled to relief.  What Does a Securities Lawyer Do? Unfortunately, investment professional misconduct that causes investors to suffer significant losses is not uncommon. If you find yourself in this situation, you may not know what your options are or what steps to take next. This is where a securities lawyer comes in.  If you are considering hiring a securities lawyer, you might also be wondering, What does a securities lawyer do? An experienced securities attorney will review your case to help you determine what to do to protect your rights and finances. Then, a securities lawyer can help you fight for the recovery you deserve.  Contact a...

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Can I Sue My Financial Advisor Over Losses?

People hire financial advisors and brokers to grow and protect their money. Financial advisors have advanced education and training, which should provide their clients with valuable insight and accurate financial advice. Individual investors expect that their advisors will not defraud or harm them in any other way. Market volatility is difficult to predict with any certainty. Markets dip and rebound over time. A financial advisor must guide you through those difficult times and offer you sound investment advice to minimize or avoid losses.  Some investments are riskier than others. Brokers and financial advisors need to understand their clients’ risk tolerance, as well as their clients’ investment needs. Losses could ruin years of hard work and financial planning.  Market volatility is one thing—negligence, deception, and fraud are something else entirely. Therefore, you should review your portfolio closely to see if you are a victim of misconduct.

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Solicited vs. Unsolicited Trades: Understanding the Difference

Ideally, hiring a skilled broker takes some of the risk out of investing. Unfortunately, however, some brokers fail to act with the appropriate level of integrity. As an investor, it’s very important to understand the difference between solicited and unsolicited trades. The distinction has significant consequences on your ability to recover losses from a bad trade. What’s the Difference Between Solicited and Unsolicited Trades? Solicited trades differ from unsolicited trades based on who originally suggested the trade. A solicited trade is one “solicited” by the broker; in other words, the broker sees the potential trade and recommends it to the investor. As a result, the broker is ultimately responsible for the consideration and execution of the trade because he or she brought it to the investor’s attention. In contrast, unsolicited trades are those initially suggested by the investor. The responsibility for unsolicited trades therefore lies primarily with the investor, while the broker merely facilitates the investor’s proposed transaction.

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What Is a Broker CRD Number?

Brokers and brokerage firms in the United States must register with the Financial Industry Regulatory Authority (FINRA). Without registering, firms and individuals may not conduct security transactions. By maintaining a registration system, FINRA can better monitor and record the activities of registered brokers. FINRA offers a free online service for investors to check the history of their brokers for suspensions, sanctions, or other FINRA actions. What Is a Broker CRD Number? FINRA manages the Central Registration Depository (CRD) program. This program covers the licensing and registration of individuals and firms in the securities industry in the United States. When a broker or firm registers with FINRA, the regulator assigns them a CRD number. Investors can use a broker’s CRD number to check that broker’s work history and disciplinary record using BrokerCheck. 

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Non-Discretionary Accounts vs. Discretionary Accounts

When investors first set up an account with a brokerage firm, that account is designated as either discretionary or non-discretionary. Unfortunately, many investors are simply unaware of the status of their account or what it means. This is usually because investment brokers fail to properly explain each type of account. However, knowing what kind of investment account you have is important. The claims available to a victim of investment fraud or broker misconduct depend on the status of your account.

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