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.
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:
- Conflicts, and
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.
The Law Offices of Robert Wayne Pearce, P.A., has been representing investors in disputes against their financial advisors for over 40 years. Here is what some of our former clients have to say:
“Highly recommended. Bob Pearce represented my elderly parents when they realized they had been swindled out of their life savings by an unscrupulous investment firm that headquartered the elderly. Bob was very thorough and patient and remained our attorney after both of our parents died and six siblings had to decide if and how to proceed with our lawsuit. Bob explained all issues well, under-promising and over delivering. He also made himself available for a multitude of phone calls as we had to come together in our decisions which involved six siblings in three different cities and time zones and in two languages (English & Spanish). In the end, we won our case and the award was higher than expected.”– Sonia D.
“This law firm is the real deal. We were so lucky that they took our case as they have so much experience in securities and all the wrongdoing that happens in these investment companies where they mislead you and your money (as in our case) into schemes that are not what you think they are.– Astrid M.
Mr. Robert Pearce is one of the best lawyers around, a truly professional who will fight for you and will tell you as it is all the time.
We could not have gone thru this experience if it was not for all the advice, guidance and support he and all of his staff and associates brought to the game.
For the best fighting chance, Robert Pearce is the lawyer you want in your corner.”
Contact the Law Offices of Robert Wayne Pearce Today
The Law Offices of Robert Wayne Pearce, P.A., represent clients on all sides of securities, commodities, and investment fraud matters. Our stockbroker fraud attorneys have a broad range of experience navigating cases in courtroom litigation, arbitration, and mediation proceedings. We have handled hundreds of FINRA, AAA, and JAMs securities arbitration and mediation cases for countless satisfied clients. So contact The Law Offices of Robert Wayne Pearce, P.A., to find out how we can help you.