Blog

Featured Posts

Mar 18, 2023

J.P. Morgan Sued For Edward Turley’s Alleged Misconduct: $55 Million!

The Law Offices of Robert Wayne Pearce, P.A. has filed another case against Ex-J.P. Morgan broker Ed Turley for alleged misrepresentations, misleading statements, unsuitable recommendations, and mismanagement of Claimants’ accounts. The Law Offices of Robert Wayne Pearce has filed another case against J.P. Morgan Securities for alleged misrepresentations, misleading statements, unsuitable recommendations, and mismanagement of Claimants’ accounts continuing in fall 2019 and thereafter by Edward Turley (“Turley”), a former “Vice-Chairman” of J.P. Morgan. At the outset, it is important for our readers to know that our clients’ allegations have not yet been proven. IMPORTANT: We are providing information about our clients’ allegations and seeking information from other investors who did business with J.P. Morgan and Mr. Turley and had similar investments, a similar investment strategy, and a similar bad experience to help us win our clients’ case. Please contact us online via our contact form or by giving us a ring at (800) 732-2889. Latest Updates on Ed Turley – November 18, 2022 The Advisor Hub reported today that the former star broker with J.P. Morgan Advisors in San Francisco Edward Turley agreed to an industry bar rather than cooperate with FINRA’s probe of numerous allegations of excessive and unauthorized trading that resulted in more than $100 million worth of customer complaints. FINRA had initiated its investigation of Edward Turley as it related to numerous customer complaints in 2020. The regulator noted in its Acceptance Waiver and Consent Agreement (AWC) that the investors had generally alleged “sales practice violations including improper exercise of discretion and unsuitable trading.” According to Edward Turley’s BrokerCheck report, he had been fired in August 2021 for “loss of confidence concerning adherence to firm policies and brokerage order handling requirements.” On October 28th, FINRA requested Turley provide on-the-record testimony related to his trading patterns, including the “use of foreign currency and margin, and the purchasing and selling of high-yield bonds and preferred stock,” but Edward Turley through counsel declined to do so. As a result, Edward Turley violated FINRA’s Rule 8210 requiring cooperation with enforcement probes, and its catch-all Rule 2010 requiring “high standards of commercial honor,” the regulator said and he was barred permanently from the securities industry. Related Read: Can You Sue a Financial Advisor or Stockbroker Over Losses? Turley Allegedly Misrepresented And Misled Claimants About His Investment Strategy The claims arise out of Turley’s “one-size-fits-all” fixed income credit spread investment strategy involving high-yield “junk” bonds, preferred stocks, exchange traded funds (“ETFs”), master limited partnerships (“MLPs”), and foreign bonds. Instead of purchasing those securities in ordinary margin accounts, Turley executed foreign currency transactions to raise capital and leverage clients’ accounts to earn undisclosed commissions. Turley over-leveraged and over-concentrated his best and biggest clients’ accounts, including Claimants’ accounts, in junk bonds, preferred stocks, and MLPs in the financial and energy sectors, which are notoriously illiquid and subject to sharp price declines when the financial markets become stressed as they did in March 2020. In the beginning and throughout the investment advisory relationship, Turley described his investment strategy to Claimants as one which would generate “equity returns with very low bond-type risk.” Turley and his partners also described the strategy to clients and prospects as one “which provided equity-like returns without equity-like risk.” J.P. Morgan supervisors even documented Turley’s description of the strategy as “creating portfolio with similar returns, but less volatility than an all-equity portfolio.” Note: It appears that no J.P. Morgan supervisor ever checked to see if the representations were true and if anybody did, they would have known Turley was lying and have directly participated in the scheme. The Claimants’ representative was also told Turley used leverage derived from selling foreign currencies, Yen and Euros, to get the “equity-like” returns he promised. Turley also told the investor not to be concerned because he “carefully” added leverage to enhance returns. According to Turley, the securities of the companies he invested in for clients “did not move up or down like the stock market,” so there was no need to worry about him using leverage in Claimants’ accounts and their cash would be available whenever it was needed. The Claimants’ representative was not the only client who heard this from Turley; that is, he did not own volatile stocks and not to worry about leverage. Turley did not discuss the amount of leverage he used in clients’ accounts, which ranged from 1:1 to 3:1, nor did Turley discuss the risks currency transactions added to the portfolio, margin calls or forced liquidations as a result of his investment strategy. After all, Turley knew he could get away without disclosing those risks. This was because J.P. Morgan suppressed any margin calls being sent to Turley’s clients and he liquidated securities on his own to meet those margin calls without alarming clients.  This “one-size-fits-all” strategy was a recipe for disaster. J.P. Morgan and Turley have both admitted that Turley’s investment strategy was not suitable for any investor whose liquid net worth was fully invested in the strategy. It was especially unsuitable for those customers like Claimants who had other plans for the funds in their J.P. Morgan accounts in fall 2019 and spring 2020. Unfortunately, Turley recommended and managed the “one-size-fits-all” strategy for his best clients and friends, including Claimants. Turley was Claimants’ investment advisor and portfolio manager and required under the law to serve them as a “fiduciary.” He breached his “fiduciary” duties in making misrepresentations, misleading statements, unsuitable recommendations, and mismanagement of Claimants’ accounts. The most egregious breach was his failure to take any action to protect his clients at the end of February 2020, when J.P. Morgan raised the red flags about COVID-19 and recommended defensive action be taken in clients’ accounts. Turley Allegedly Managed Claimants’ Accounts Without Written Discretionary Authority Claimants’ representative hired Turley to manage his “dry powder,” the cash in Claimants’ accounts at J.P. Morgan, which he would need on short notice when business opportunities arose. At one point, Claimants had over $100 million on deposit with J.P. Morgan. It was not...

Keep Reading

Sep 1, 2020

Investors With “Blown-Out” Securities-Backed Credit Line and Margin Accounts: How do You Recover Your Investment Losses?

If you are reading this article, we are guessing you had a bad experience recently in either a securities-backed line of credit (“SBL”) or margin account that suffered margin calls and was liquidated without notice, causing you to realize losses. Ordinarily, investors with margin calls receive 3 to 5 days to meet them; and if that happened, the value of the securities in your account might have increased within that period and the firm might have erased the margin call and might not have liquidated your account. If you are an investor who has experienced margin calls in the past, and that is your only complaint then, read no further because when you signed the account agreement with the brokerage firm you chose to do business with, you probably gave it the right to liquidate all of the securities in your account at any time without notice. On the other hand, if you are an investor with little experience or one with a modest financial condition who was talked into opening a securities-backed line of credit account without being advised of the true nature, mechanics, and/or risks of opening such an account, then you should call us now! Alternatively, if you are an investor who needed to withdraw money for a house or to pay for your taxes or child’s education but was talked into holding a risky or concentrated portfolio of stocks and/or junk bonds in a pledged collateral account for a credit-line or a margin account, then we can probably help you recover your investment losses as well. The key to a successful recovery of your investment loss is not to focus on the brokerage firm’s liquidation of the securities in your account without notice. Instead, the focus on your case should be on what you were told and whether the recommendation was suitable for you before you opened the account and suffered the liquidation.

Keep Reading

Jul 1, 2020

FINRA Arbitration: What To Expect And Why You Should Choose Our Law Firm

If you are reading this article, you are probably an investor who has lost a substantial amount of money, Googled “FINRA Arbitration Lawyer,” clicked on a number of attorney websites, and maybe even spoken with a so-called “Securities Arbitration Lawyer” who told you after a five minute telephone call that “you have a great case;” “you need to sign a retainer agreement on a ‘contingency fee’ basis;” and “you need to act now because the statute of limitations is going to run.”

Keep Reading

Mar 2, 2019

A Stockbroker’s Introduction to FINRA Examinations and Investigations

Brokers and financial advisors oftentimes do not understand what their responsibilities and obligations are and what may result from a Financial Industry Regulatory Authority (FINRA) examination or investigation. Many brokers do not even know the role that FINRA plays within the industry. This may be due to the fact that FINRA, a self-regulatory organization, is not a government entity and cannot sentence financial professionals to jail time for violation of industry rules and regulations. Nevertheless, all broker-dealers doing business with members of the public must register with FINRA. As registered members, broker-dealers, and the brokers working for them, have agreed to abide by industry rules and regulations, which include FINRA rules.

Keep Reading

More Posts

Dec 15, 2021

Announcing 2021 Winner – Robert Wayne Pearce Investor Fraud Awareness Scholarship

As promised, today we are announcing the 2021 winners of the Robert Wayne Pearce Investor Fraud Awareness Scholarship. Over the course of the year, we received applications from over 30 students from schools around the country who all wrote quality essays about the dangers of investment fraud and how we can protect ourselves. It was a difficult decision to select just one student winner and so, in addition to the grand prize of $2,500, we have selected 5 other students who are being awarded consolation prizes of $100 each for their efforts and sharing their thoughts on investment fraud and how to protect ourselves. The winner of the $2500 scholarship is Karen Simpson, a student at Palm Beach State College, who wrote, among other things: Investment fraud is a very real and serious problem that happens more than you may realize. But it doesn’t have to scare you away from investing your money in fear of losing it. Learning about the different types of investment fraud and how to protect yourself from fraud, before you decide to invest, is extremely important! You could not only experience financial loss but suffer compromised identity, damaged credit, and emotional issues including rage, frustration, and fear. *** Knowledge is power, and so I also recommend you educate yourself by learning about general nature, mechanics and risks of different types of investments before you start investing. I find an excellent starting point to educate myself is Investopedia, www.investopedia.com. You can also find specific financial information, including, annual reports, prospectuses and offering circulars about companies recommended to compare what you were told about a recommended investment by searching the U. S. Securities and Exchange Commission Edgar website for information, www.sec.gov/edgar/search-and-access.  *** The easiest way to protect yourself is to use common sense, look for the red flags and ask questions. Follow a strict check list of do’s and do nots, if it sounds too good to be true, in most cases, it is. If you notice any red flags about an investment, avoid it, as well as the person making the recommendation. That “High Guaranteed Returns” pitch they love to give, don’t believe it. Every investment carries some degree of risk, which is generally reflected in the rate of return you are promised. The higher the return, the higher the risk! The winners of the $100 consolation prizes are as follows: India Bartram of the University of Syracuse, Syracuse, New York Jacob Paul of Villanova University –Charles Widger School of Law, Villanova, Pennsylvania  Kylie Fay of the University of South Alabama, Mobile, Alabama Natalia Capella of the University of Tennessee, Knoxville, Tennessee Rafael Whalen of John Paul The Great Catholic School, Escondido, California We thank all of the other applicants for their efforts, as well, and announce that the next scholarship to be awarded December 15, 2022 will be given to the student who writes the most thoughtful essay about whether they believe the Robinhood Markets, Inc. (“Robinhood”) Investment App is a good tool for novice investors or just game to take advantage of them and make money for the stock brokerage firm. We are interested in learning whether you think Robinhood platform is living up to the legend of Robinhood, who took from the rich and gave to the poor!

Continue Reading

Aug 2, 2021

FINRA Rule 2165: Financial Exploitation of Specified Adults

Are you curious about how FINRA Rule 2165 can protect you or a loved one who is being financially exploited? FINRA Rule 2165 helps families and brokers who suspect securities fraud in a vulnerable adult’s account. It allows them to take key actions against investment loss.  While their broker may be trustworthy, your parents or other elderly loved ones may reach a point where they are no longer able to make sound investment decisions. A common example of this is when a parent becomes involved in a Ponzi scheme. Another often-seen scenario is when a parent is defrauded into allowing a nefarious third party access to their accounts. Their accounts are quickly drained before an eagle-eyed broker or a caring son or daughter suspects investment fraud. FINRA Rule 2165 is designed with folks like senior citizens in mind. The rule helps a broker look out for their vulnerable clients’ interests. It also enables them to do so before losses become catastrophic.  FINRA Rule 2165: Financial Exploitation Defined FINRA Rule 2165 defines “financial exploitation” as consisting of either of two circumstances. First, Rule 2165 identifies financial exploitation as the wrongful or unauthorized taking or use of a specified adult’s funds or securities. This first definition is very broad and can encompass many types of financial exploitation. Second, Rule 2165 defines financial exploitation as any action or omission, including through a power of attorney or a guardianship, to do any of the following things:  Obtain control over a specified adult’s money, assets, or property through deception, intimidation, or undue influence; or  Steal the specified adult’s money, assets, or property.  FINRA Rule 2165 only protects “specified adults.” These are vulnerable people who may not be able to make their own financial decisions. FINRA Rule 2165 defines a “specified adult” as: A person age 65 or older; or A person age 18 or older who has a mental or physical impairment that impacts their ability to look after their own interests. The financial exploitation definition under FINRA Rule 2165 relates only to actions taken against specified adults. If you do not fit into the category of “specified adult,” you still may have been the victim of securities fraud. If so, it’s important to reach out to an experienced securities fraud attorney as soon as possible.  How FINRA Rule 2165 Protects Vulnerable Adults from Financial Exploitation FINRA Rule 2165 and its sister rule, FINRA Rule 4512, protect vulnerable adults from financial exploitation. These rules work together to allow a vulnerable person’s broker to freeze disbursement of funds from an account suspected of financial exploitation. They also allow a broker to notify a vulnerable person’s important contacts when the broker suspects financial exploitation is taking place. Preventing the Disbursement of Funds When Financial Exploitation Is Suspected A broker is able to place a temporary hold on a disbursement of funds or securities from a specified adult’s brokerage account if/when: A broker has a reasonable belief that financial exploitation has been or will be attempted, has occurred or is occurring; A broker notifies all parties authorized to transact in the account, as well as the account’s trusted contacts, about the temporary hold and the reason for it; and A broker initiates an internal review of why they believe financial exploitation was taking place. The notification to authorized persons on the account can be made orally or in writing (electronic communication is okay) within two business days. Brokers must communicate clearly and quickly about the temporary hold and the reason for the temporary hold. When working with specified adults, a broker needs to maintain a list of trusted contacts. A trusted contact person does not have to be a signatory on the account but can be anyone the broker can share important account information with.  Notification is a very important element of Rule 2165 because placing a hold on client funds is no small matter. However, if the broker suspects that the trusted contact is the person perpetrating the fraud, the broker is no longer under an obligation to notify them.  Rule 2165 Amends Other Protections Against Exploitation The SEC adopted FINRA Rule 2165 in February 2018, which amended FINRA Rule 4512. Previously, Rule 4512 only required brokers to collect and maintain basic personal data about their clients. Now, brokers are required to make reasonable efforts to obtain and maintain the name of a trusted contact person as well.  This revised rule is a great resource for investors and brokers alike. As the investor population ages, trusted contacts can be an excellent resource for brokers to share concerns about unusual client behavior or diminished capacity to make investment decisions. Early communication can lead to better results for investors, caregivers, and brokers. It can even prevent financial exploitation in the first place. Brokers Are Responsible for Compliance  Brokers now must make decisions about whether their clients have the ability to make financial decisions for themselves. This can be difficult and even embarrassing where brokers and clients have worked together for many years. Cognitive abilities of aging people and people with disabilities can change dramatically in short periods of time. Determining if and when a client is at risk of financial exploitation is a very delicate task. The responsibility falls on brokers to understand when transactions are legitimate or not.  Contact a Securities Fraud Attorney If you or a loved one has been financially exploited, you may have a legal right to pursue action against responsible parties. Experience is key in litigating cases like these. We at The Law Offices of Robert Wayne Pearce, P.A., are eager to help you understand your rights. Robert Pearce has many years of experience in the area of securities fraud. He has arbitrated and mediated hundreds of investment-related disputes in his career. Our team of experienced investment loss litigators has recovered over $170 million dollars for well-qualified investors. We help investors nationwide and internationally pursue claims for a variety of investment losses and frauds. Contact us today about a free initial consultation on your...

Continue Reading

Aug 2, 2021

How to Report a Ponzi Scheme

Ponzi-like schemes swindle investors out of millions of dollars every year. A common form of investment fraud, a Ponzi scheme occurs when existing investors receive distributions from funds provided by new investors rather than as a result of profits. Because Ponzi schemes can only function as long as new investors are providing funds, the schemes eventually collapse, resulting in significant losses for new and old investors. While Ponzi schemes are illegal, they nevertheless continue to exist. In fact, some sources have noted that in 2020 Ponzi schemes hit their highest levels in a decade.  If you are a victim of a Ponzi scheme, you may be wondering what recourse you have. Fortunately, there are actions you can take. By reporting a Ponzi scheme, you can help hold these fraudsters accountable and prevent other victims from being taken advantage of as well.  Don’t know where to begin? Contact attorney Robert Wayne Pearce today to learn more about how to report a Ponzi scheme and see what our team can do to help.  What Is a Ponzi Scheme? Financial advisors recommend investment strategies to investors based on their investment profile. In many situations, investors seek investments likely to result in returns based on the profitability of the investment. In a Ponzi scheme, investors do receive “returns.” However, these returns are not from the profits of their investment. Rather, the operator of the Ponzi scheme will issue payments to earlier investors from the new investment funds provided by newer investors. Inevitably, Ponzi schemes will run out of new investors who are willing to invest in the scheme. This results in the inability to issue the fraudulent returns to older investors and causes the entire scheme to crumble. In an ideal world, these types of fraudulent schemes would not exist. Unfortunately, however, there is always some risk that you could fall victim to a Ponzi or Ponzi-like scheme. What’s important is that you know where to turn and what steps you can take moving forward.  If you suspect you invested in a Ponzi scheme, consult with an investment lawyer who can explain the steps you should take next. With over 40 years representing investors, attorney Robert Pearce has the knowledge and experience you need to help you fight for your rights and recovery.  Examples of SEC Enforcement Actions Against Ponzi Schemes In April 2021, the SEC charged Los Angeles-based actor Zachary Horwitz and his company, 1inMM Capital, LLC, in connection with a Ponzi scheme that reportedly raised over $690 million from investors.  Horwitz and his company represented to investors that the investment funds would be used to purchase film rights and that the films would then be sold to Netflix or HBO. Horwitz allegedly claimed to have an extensive track record of selling movie rights to Netflix and HBO, despite the fact that he never maintained a business relationship with either company.  1inMM and Horowitz reportedly promised investors returns in excess of 35%. Instead, Horwitz paid early investors with the funds provided by new investors and misappropriated millions of dollars for himself. In January 2020, the SEC charged California-based husband and wife Jeffrey and Paulette Carpoff with orchestrating a nearly billion-dollar Ponzi scheme involving alternative energy tax credits.  The pair reportedly raised approximately $910 million from 17 investors between 2011 and 2018 by offering securities in the form of investment contracts through two solar generator companies, DC Solar Solutions, Inc., and DC Solar Distributions, Inc. The SEC alleged that the couple used at least $170 million of the investors’ funds to fund their lifestyle and used the remaining funds to issue dividends to earlier investors. If you have fallen victim to a Ponzi scheme, know that you are not alone. Reach out to our investment loss attorneys today to get started on the pathway toward recovery.  Indicators of a Ponzi Scheme Ponzi schemes come in many different shapes and sizes. However, there are certain common indicators of a Ponzi scheme that you should be aware of.  Many red flags associated with Ponzi schemes present themselves prior to and during the investment process. Recognition of these characteristics before making your investment can prevent you from suffering serious losses down the road. Common indicators of a Ponzi scheme include: Promises of high returns with little or no risk; Returns that are overly consistent; The sale of unregistered investments; A lack of transparency regarding the investment strategy; Errors or discrepancies on account statements; and Difficulty receiving or cashing out your payments. The presence of red flags such as these may signal the existence of illegal activity. If you experience any of these issues with your investments, a securities lawyer can help you determine if you invested in a Ponzi scheme.  Reporting a Ponzi Scheme Ponzi schemes can cost investors millions of dollars in losses. In an attempt to curb the operation of the fraudulent schemes, the SEC and FBI provide resources for individuals who suspect Ponzi schemes to report the misconduct. Federal Bureau of Investigation (FBI) The FBI provides an electronic tip form to individuals wishing to report federal law violations. Additionally, for internet-based crimes, the FBI offers another way to submit a tip. Because many Ponzi schemes begin and operate online, this might be the best place to report a Ponzi scheme. Securities and Exchange Commission (SEC) The SEC also provides defrauded investors an avenue to report suspected Ponzi schemes and other fraudulent activities. SEC Ponzi scheme tips can be submitted online directly through the SEC website.  Contact an Investment Loss Attorney Today Losing your valuable and hard-earned money in a fraudulent Ponzi scheme is never easy. If this has happened to you, we want to help. At the Law Offices of Robert Wayne Pearce, P.A., we have decades of experience helping investment loss victims in need. Firm founder and lead attorney Robert Pearce has recovered funds for over 99% of his investor clients and recovered over $100 million in the last 20 years alone through court litigation, arbitration, and settlements.  Want to know more about...

Continue Reading

Aug 2, 2021

Tips for Hiring the Best Structured Product Investment Lawyer

Investment vehicles come in a variety of forms, each with their own benefits and risks. Structured products are one such vehicle. These products can offer a compelling return, but at the cost of increased risk and complexity. If you lost money on a structured product investment, you may be able to file a claim to recover losses with the help of an investment lawyer. What Is a Structured Product? In short, a structured product is a type of security derived from or based on one or more other securities. The defining feature of a structured product, however, is that its return is based on the performance of the underlying asset. Structured products offer a great deal of customization that allows brokers to tailor the risk profile to each individual investor. At the same time, however, they are complicated securities with a level of risk that make them inappropriate for many investors. This complexity makes it more important than ever to make sure you have the best investment lawyer if you lose money on one of these products. Tip #1: Make Sure They Are Familiar with Structured Product Investments As explained above, structured product investments are fairly complex. Your investment lawyer needs to understand that complexity to properly represent you. Even if most investment lawyers are generally familiar with different investment products, a structured product investment lawyer will have additional experience working on cases involving these securities. Tip #2: Make Sure They Understand the Specific Risks of Structured Product Investments As an investor, you’ve no doubt been told many times about the risks involved with particular investments. Your investment lawyer should have the same understanding of those risks. Not only will this allow the lawyer to better understand your particular situation, it also means they will be more familiar with the ways in which a broker may cause you to lose money. For example, making sure your investments are suitable for you is a large part of a broker’s responsibility. Considerations as to the suitability of a structured product generally include: The volatility of the underlying asset; Tax implications based on structured products being considered “contingent payment debt instruments” by the IRS; Limits or caps on the product’s pay-outs; Accurately assessing the price of the product; Lack of an established trading market for structured products; and Loss of principal. Because structured products are so customizable, the specific risks associated with a specific structured product investment may vary. Tip #3: Ask About Their Experience with FINRA Arbitration and Mediation Many brokerage firms require investors to agree to arbitration when they open a brokerage account. While similar to court proceedings, arbitration is somewhat different and requires its own set of skills. At our firm, for example, Robert Wayne Pearce has handled arbitration and mediation before many regulatory authorities, including the Securities and Exchange Commission. In summary, the best investment lawyers will be those with experience in the specific types of proceedings relevant to your case. Tip #4: Ask Them About Their Familiarity with FINRA Rules and Broker Responsibilities The Financial Industry Regulatory Authority (FINRA), administers the set of rules that bind brokers and protect investors. Understanding these rules is just as important for investment lawyers as for brokers. Only with a deep understanding of the FINRA rules can a lawyer provide the most thorough representation to protect your rights. For example, FINRA rules prohibit brokers from “selling away,” a term for selling securities not offered by their brokerage firm. Unfortunately, brokers sometimes offer unapproved securities to their clients. With structured products, the risk can be especially high. Additionally, keep in mind that not all broker violations are obvious. Every investor’s situation is slightly different, and the way in which a broker might harm an investor is highly dependent on the facts of each case. Accordingly, you can’t go wrong by having a lawyer with experience who has handled structured investment loss claims before. Tip #4: Assess Whether You Get Along with Them An often-overlooked part of hiring legal counsel is whether you actually like your lawyer. While there’s nothing wrong with hiring an attorney based on their pedigree, it’s important not to forget that your attorney should also be someone you can work with. As with any other professional service, you shouldn’t have to put up with an attorney you dislike, especially if your case will last a long time. When you’re looking for an investment lawyer, figure out what kind of lawyer you’d like: do you prefer someone who doesn’t bother you unless there’s a major development, or would you rather be kept in the loop with more frequent updates? Do you value a friendly “bedside manner,” or are you ok with stricter professionalism? Tip #5: Ask Them About Previous Experience Handling Similar Cases Structured investment product claims may involve unique or complex issues. An attorney with previous experience handling such claims will be much better equipped to help you recover losses if possible. Tip #6: Find Out Their Track Record of Obtaining Settlements Investment lawyers typically include information about their past settlement awards directly on their website. If they don’t, it’s something you can ask about during your initial consultation. The best structured product investment lawyer will be one with a proven track record of winning cases for clients. Tip #7: Confirm Their Reputation Within the Legal Community As members of a profession with a high ethical standard, a lawyer’s reputation is hugely important. Whatever the size of the firm, it can be useful to vet their reputation like you would with another personal service. State and local bar associations and personal recommendations are a good way to evaluate any attorney. You can also check resources like the Martindale-Hubbell peer rating program, which ranks attorneys based on peer ratings and client reviews. Ready to Hire an Investment Lawyer? The Law Offices of Robert Wayne Pearce, P.A. is a Martindale-Hubbell AV Preeminent rated firm with more than 40 years of experience representing investors and brokers. If you lost money through a structured...

Continue Reading

Jul 13, 2021

Understanding FINRA Rule 2111: Suitability

As an investor, you may have heard of FINRA Rule 2111, also known as the suitability rule. But what exactly is FINRA 2111? And how does it affect you and your investments?  When you hire a brokerage firm or financial advisor to make transaction or investment strategy recommendations, you expect that they will do so in a manner that is suitable for you and your particular circumstances. Unfortunately, however, this is not always the case. If you have suffered financial losses as a result of unsuitable investment strategies and recommendations by your financial advisor, contact securities law attorney Robert Wayne Pearce today.  An Overview of FINRA Rule 2111 Suitability in investing is an overarching concept that describes whether an individual investment is suitable for a client after consideration of that particular client’s characteristics.  The suitability rule requires financial advisors to have a “reasonable basis” to believe that a recommended transaction or investment strategy is suitable for their client. A financial advisor determines the suitability of a particular transaction or investment strategy through learning about the investment profile of his or her customer. Experts interpret FINRA Rule 2111 as requiring financial advisors to make recommendations that are in their customer’s best interests. FINRA outlines situations involving financial advisors violating the suitability rule by placing their interests above the interests of their client, including: Financial advisors who recommend that clients use margin to purchase a larger number of securities to increase commissions;  Brokers who recommend unsuitable securities with high commissions because of pressure from their firm to sell the securities; or A broker who recommends one product over another with the goal of earning more commissions. Unsuitable investment recommendations lead to thousands of dollars in losses for investors every year based on financial advisors recommending products that are illiquid, speculative, and high-risk. If this has happened to you, contact an experienced investment losses attorney today to get started on your case. Suitability Obligations Imposed by FINRA Rule 2111 Rule 2111 consists of three primary obligations: reasonable basis suitability, customer-specific suitability, and quantitative suitability. Reasonable Basis Suitability Reasonable basis suitability mandates that a financial advisor have a reasonable basis, based on reasonable diligence, to believe that a recommendation is suitable for the public at large. This reasonable diligence should provide the financial advisor with a basic understanding of risks and rewards associated with the recommended transaction or investment strategy.  A broker must comprehend the risks and rewards associated with a particular investment. Failure to do so and recommending the investment to a client anyway could result in charges of misrepresenting the investment.  If a broker fails to comply with any of these requirements, the reasonable basis suitability obligation is not met.  Customer-Specific Suitability Customer-specific suitability involves considering specific details about an individual customer to determine whether a transaction or investment strategy is suitable.  A customer’s characteristics that are to be considered during a suitability analysis include: Employment status, Age, Financial situation, Tax status, Experience investing, Investment goals, Risk tolerance, Liquidity needs, and Investment time horizon. The financial advisor should evaluate these characteristics in determining whether the investment or strategy is suitable for that particular customer. Quantitative Suitability The quantitative suitability element evaluates the volume of trades made by a financial advisor.  For a quantitative suitability analysis, transactions made in a customer’s investment account are viewed in the aggregate. The question is whether the investments recommended qualify as a suitable strategy overall, not whether each individual transaction was suitable. The quantitative suitability obligation seeks to prevent financial advisors from making excessive trades in a client’s account solely for the purpose of generating commission fees.  Contact an Investment Loss Attorney Today FINRA 2111 investment loss cases can be particularly complex. That’s why it is important to have an experienced investment loss attorney in your corner.  Since 1980, the attorneys at The Law Offices of Robert Wayne Pearce, P.A., have represented countless investors as they fight for their rights. If you are a victim of broker negligence or misconduct, we want to help. We have recovered over $170 million for well-deserving clients, and we will fight to get you the results you deserve too.  Contact our team today for your free case evaluation, and see what we can do for you.

Continue Reading

Jul 13, 2021

FINRA Rule 2010: Standards of Commercial Honor and Principles of Trade

FINRA Rule 2010 states that FINRA members must observe “high standards of commercial honor and just and equitable principles of trade” in the conduct of their business. If you think this rule seems broad, that’s because it is. And unfortunately, FINRA members do not always live up to these high standards prescribed in FINRA Rule 2010. So what do you do if your broker or financial advisor has failed to comply with its obligations under FINRA 2010? Broker misconduct costs investors millions of dollars in investment losses each year. Such losses are often the result of fraud, misrepresentation, or negligent supervision of your account. While such misconduct can result in severe financial ramifications for you, fortunately there are avenues to hold these wrongdoers accountable.  If you suffered losses that you believe are a result of your broker failing to uphold the high standards of commercial honor and equitable principles of trade, contact The Law Offices of Robert Wayne Pearce, P.A. Discuss your case with an experienced investment loss attorney as soon as possible to see how you may be able to recover.  Overview of Other Notable FINRA Rules Typically, FINRA Rules outline the specific conduct prohibited by the rule itself. For example: FINRA Rule 1122 prohibits FINRA members and other individuals from filing membership or registration information with FINRA that contains incomplete or inaccurate information; FINRA Rule 2111 requires brokers to only recommend investments or investment strategies that are suitable for the client; and FINRA Rule 5270 prohibits the front running of block transactions. So where does FINRA Rule 2010 come into play?   Oftentimes, investors utilize Rule 2010 to address misconduct not described in other FINRA rules. Rule 2010 operates as a catch-all provision to protect investors from financial negligence and other unethical practices by financial advisors and institutions.  What Does Rule 2010 Prohibit? Rule 2010 sanctions brokers for bad faith or unethical “business-related” misconduct. Receiving a sanction under Rule 2010 does not necessarily mean the broker violated the law, even though a securities law violation on its own supports a finding that a broker violated Rule 2010. Conduct deemed unethical or immoral, though not necessarily prohibited by law, authorizes discipline under the rule. Business-Related Requirement FINRA Rule 2010 mandates that the alleged misconduct be business-related to qualify for discipline under this rule. In a 2019 FINRA disciplinary action, a FINRA Hearing Panel explained that the relationship between the FINRA member’s unethical actions and the conduct of his or her securities business do not have to be closely connected. Rather, the Panel implied that Rule 2010 extends to any misconduct that “reflects on the associated person’s capacity to comply with the regulatory requirements of the securities business and to fulfill [his or her] fiduciary duties in handling other people’s money.” Examples of FINRA Rule 2010 Violations Ultimately, every case alleging violation of Rule 2010 requires individual analysis to determine if the misconduct amounts to a violation of the rule. To determine whether the rule was violated, evaluation of both the totality of the circumstances and the context of the misconduct is required. Remember, a Rule 2010 violation occurs even in circumstances when a broker does not commit a violation of state or federal law. Actions considered a violation of Rule 2010 include: Misappropriating funds from clients or an employer; Sharing the confidential information of customers without approval; Forging signatures; Making alterations to important financial documents; Soliciting donations for personal benefit or other unauthorized uses; Misrepresenting financial information to customers; and Refusing to pay attorney fees and other expenses after initiating litigation against a customer. Rule 2010 allegations arise frequently in conjunction with allegations that a broker violated another FINRA Rule. Contact an Investment Loss Attorney to Answer Your Rule 2010 Questions Arguably at the core of securities regulation is FINRA 2010. Without such a rule, FINRA members would have no overarching obligation to conduct their business with such high standards of honor and integrity. Of course, even with Rule 2010 in place, FINRA members will inevitably fall short of these standards. When they do, know you can turn to The Law Offices of Robert Wayne Pearce, P.A. With more than 40 years of experience representing investors and holding their brokers and financial advisors accountable for misconduct, you can be confident that our team has the knowledge and resources necessary to fight for you.  Attorney Robert Pearce has a strong record of success, recovering funds for more than 99% of his investor clients. To discuss your case and start the process toward compensation, contact us today for a free case evaluation.

Continue Reading

Jul 9, 2021

Excessive Buying and Selling of Securities to Generate Commissions Is Called Churning – Is It Happening to You?

Many people often ask, Is churning illegal? The answer is yes. SEC regulations and FINRA rules prohibit the practice of making excessive purchases or sales of securities in investor accounts for the primary purpose of generating commissions, known as churning. Despite the illegality of churning, FINRA filed 190 arbitration actions for the year of 2020 through the end of December against brokers accused of the practice. If you suffered losses in your investment account as a result of excessive trading, contact a churning fraud lawyer to determine whether you are entitled to recover compensation.  What Is Churning in Finance? Churning, also known as excessive trading, takes on a new meaning in the financial industry that doesn’t have anything to do with butter. Excessive trading occurs when a broker makes multiple trades in a customer’s investment account for the primary purpose of generating high commissions. Churning often results in significant losses for investors. The SEC’s Regulation Best Interest, or Reg BI, establishes a standard of conduct for broker-dealers and their employees when recommending investments to retail customers. Reg BI requires brokers to act in the customer’s best interest and not place his or her own interests ahead of those of the investor. Churning is almost never in the best interest of the investor—even those with aggressive trading strategies. Signs Your Advisor Is Churning in Your Investment Account Churning stocks leads to substantial investor losses, especially in situations where it lasts for a long period of time. Many times, investors fail to recognize the indicators that their broker committed the crime of excessive trading until it is too late. There are a number of cautionary signs to look out for when you fear your financial advisor is excessively trading in your account. Unauthorized Trades Unauthorized trading occurs when a broker trades securities in your investment account without receiving prior authorization. If you have a discretionary investment account, your financial advisor has authorization to make trades in your account without seeking your approval for each transaction; however, your broker is still bound by the best interest standard. Excessive trading can be more difficult to detect with a discretionary account. Numerous unauthorized trades appearing on your account statement is a cause for concern. To recognize these transactions, you should review your account statement on a monthly basis and verify the information provided. If you observe unauthorized trades on your account statement, notify your broker and broker-dealer immediately.  Unusually High Trade Volume A high volume of trading activity in a short period of time can signify churning, especially for investors pursuing a conservative investment strategy. Pay special attention to transactions involving the purchase and sale of the same securities over and over. Attorney Robert Pearce has over 40 years of experience representing clients whose brokers’ misconduct caused financial losses. Mr. Pearce’s extensive experience enables him to recognize indicators of churning immediately and prove the amount of damages you suffered as a result of your broker’s misconduct.  Excessive Commission Fees Unusually high commission fees appearing on your account statement is another indication of excessive trading. If the commission fees jump significantly from one month to the next, or if one segment of your investment portfolio consistently generates higher commissions than any other segment, there is a chance your broker is churning your account. Account statements do not typically include fee amounts charged for each individual transaction. Thus, do not hesitate to contact your broker-dealer to request an explanation of the commissions charged to your account. If you feel you are being charged excessive fees in your investment accounts, contact The Law Offices of Robert Wayne Pearce, P.A., to discuss your options.  Contact Our Office Today for a Free Consultation Churning in the financial industry can result in monetary sanctions and even disqualification from the financial industry in extreme cases. The practice involves the manipulation and deception of investors that entrust their brokers to act in their best interest, warranting severe punishment. Robert Wayne Pearce has handled dozens of churning cases and can provide a complete review of your account statements to determine whether excessive trading occurred. Additionally, The Law Offices of Robert Wayne Pearce, P.A., employs experts that can perform a churning analysis of the trading activity in your account to establish concrete evidence that the practice occurred. We have the experience, expertise, and commitment to obtain the damages you deserve. Contact our office today for a free case evaluation.

Continue Reading

Jul 9, 2021

FINRA Know Your Customer Rule and Investment Suitability—How Does it Apply to You?

FINRA regulates the conduct of brokers in the securities industry to protect investors from suffering losses due to financial advisor misconduct. The agency formulates rules to outline the behavior expected of broker-dealers and financial advisors when dealing with their investment clients. Nevertheless, FINRA receives thousands of customer complaints every year alleging violations of FINRA Rules. FINRA Rule 2090, the Know Your Customer (KYC) rule, and FINRA Rule 2111, the suitability rule, mandate minimum knowledge requirements for brokers when making investment recommendations and commonly appear in these customer complaints.  If you suffered investment losses due to unsuitable investment recommendations, The Law Offices of Robert Wayne Pearce, P.A., can help you determine if your broker violated one of these rules. Contact our office today for a free consultation. FINRA Rule 2090: Know Your Customer Rule FINRA Rule 2090, or the Know Your Client rule, requires financial advisors to know the “essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer” when opening and maintaining a client investment account. The “essential facts” described in the rule include details that are required to: Service the account effectively; Satisfy any special handling instructions for the account; Understand the authority of anyone acting on the customer’s behalf; and Comply with applicable laws, regulations, and rules. The KYC rule protects clients from investment losses by requiring their financial advisor to learn detailed information about their personal financial circumstances. The rule protects financial advisors by outlining the essential information about customers at the outset of the relationship, prior to any recommendations. Additionally, the financial adviser receives notification of any third parties authorized to act on the customer’s behalf. The Know Your Client rule acts in tandem with the suitability rule, FINRA Rule 2111. The information learned by financial advisors through the KYC requirement factors into the analysis of whether an investment recommendation is suitable.  FINRA Rule 2111: Suitability Alleged violation of investment suitability requirements resulted in 1,220 customer complaints filed with FINRA in 2020 alone, down from 1,580 complaints in 2019. The suitability rule requires financial advisors to have a “reasonable basis” to believe that a recommended transaction or investment strategy is suitable for the customer. A financial advisor determines the suitability of a transaction or investment strategy through ascertaining the customer’s investment profile. Factors involved in a suitability analysis include the customer’s: Age, Investment experience, Financial situation, Tax status, Investment goals, Investment time horizon, Liquidity needs, and Risk tolerance. Numerous cases interpret the FINRA suitability rule as requiring financial advisors to make recommendations that are in the best interest of their customers. FINRA outlines situation where financial advisors have violated the suitability rule by placing their interests above the interests of their client, including: A broker who recommends one product over another to receive larger commissions; Financial advisors who recommend that clients use margin to purchase a larger number of securities to increase commissions; and Brokers who recommend speculative securities with high commissions because of pressure from their firm to sell the securities. Any indication that a financial advisor has placed his or her interests ahead of the client’s interest can support a claim for a violation of the suitability rule. Rule 2111 consists of three primary obligations: (1) reasonable basis suitability, (2) customer-specific suitability, and (3) quantitative suitability. Reasonable Basis Suitability Reasonable basis suitability requires a financial advisor to have a reasonable basis to believe, based on reasonable diligence, that a recommendation is suitable for the public at large. A financial advisor’s reasonable diligence should provide him or her with an understanding of risks and rewards associated with the recommended investment or strategy. A failure to comprehend the risks and rewards associated with a particular investment prior to recommending the investment to a client can result in allegations of misrepresentation or fraud. If a broker fails to perform reasonable diligence regarding either component, the financial advisor violates this obligation. Customer-Specific Suitability Customer-specific suitability involves considering the specific details about an individual customer to determine if a transaction or investment strategy is suitable. The financial advisor reviews the details outlined above to determine the suitability of a particular transaction or strategy for each customer. Quantitative Suitability The quantitative suitability element requires financial advisors to recommend transactions that are suitable when viewed as a whole, not only when viewed in isolation. This element aims to prevent financial advisors from making excessive trades in a client’s account solely for the purpose of generating commission fees. Factors such as turnover rate, cost-equity ratio, and use of in-and-out trading indicate that the quantitative suitability obligation was violated. What Constitutes “Reasonable Diligence”  FINRA’s suitability rule requires brokers to exercise “reasonable diligence” in attempting to obtain customer-specific information. The reasonableness of a financial advisor’s effort to obtain such information will depend on the facts and circumstances of each investment relationship. A financial advisor typically relies on the responses provided by the customer in compiling information relevant to the customer’s investment profile. Some situations may prevent a broker from relying exclusively on a customer’s responses, including times when: A financial advisor poses misleading or confusing questions to a degree that the information-gathering process is tainted; The customer exhibits clear signs of diminished capacity; or Red flags exist that indicate the information may be inaccurate. Additionally, the suitability rule requires brokers to consider any other information provided by the customer in connection with investment recommendations.  Hiring an Investment Loss Attorney Violation of FINRA Rules 2090 and 2111 result in significant financial losses for investors every year. If you suffered losses because of unsuitable investment recommendations, you have the right to seek compensation from the parties responsible for your losses.  Cases against brokers and registered investment advisors can be complex for attorneys without experience in securities law.  Robert Wayne Pearce has over 40 years of experience representing investors in disputes against financial advisors and broker dealers. Mr. Pearce has tried, arbitrated, and mediated hundreds of investment-related disputes involving complex securities and FINRA rule violations. In fact, Mr. Pearce serves...

Continue Reading

May 4, 2021

Securities Law in 2021: The Definitive Guide

The law governing securities evolves constantly to keep pace with changes in the industry. Regulatory agencies like the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) F/K/A National Association of Securities Dealers (NASD) enforce various rules and regulations designed to promote fair and full disclosure of material facts related to financial markets and individual securities transactions. This guide provides a surface-level overview of the securities laws in the United States and what those laws mean for you. Important Terms in Securities Law A security is an intangible financial instrument that entitles its owner to claims of ownership on assets and earnings of the issuer or the voting power that accompanies the claims. Securities exist in the form of: Notes, Stocks, Treasury stocks, Bonds, Certificates of interest, Collateral trust certificates, Transferable shares, Investment contracts, Voting trust certificates, Certificates of deposit for a security; or A fraction, undivided interest in mineral rights. Stock markets in the United States collect trillions of dollars on investments through the securities trade.  The individuals buying or selling securities are referred to as investors. The term “retail investor” refers to an individual who typically purchases securities from a broker and, in most cases, does not purchase a large quantity of securities. The term “institutional investor,” on the other hand, often refers to a company investing large sums of money in securities.  The company buying and selling securities for investors is known as a broker-dealer. Firms like Morgan Stanley and Merrill Lynch employ brokers to serve clients by buying and selling securities on their behalf.  History of Federal Securities Law Prior to the Great Depression, the United States lacked an expansive securities regulation at the federal level. As a result, companies falsified and misrepresented financial information without fear of consequences. During the 1920s, the stock market expanded rapidly as the U.S. economy grew and stock prices reached record highs. Between August 1921 and September 1929, the Dow increased by 600%. Excitement surrounding the stock market fueled retail investors to get involved. Many retail investors purchased stocks “on margin,” meaning they only paid a small portion of the stock price and borrowed the remaining amount from a bank or broker. Despite the audacity of the claim, many believed that stock prices would continue rising forever. In early September 1929, stock prices started to decline. Not yet alarmed, many investors saw an opportunity to buy into the stock market at a lower price. The Stock Market Crash of 1929 On October 18, 1929, stock prices decreased more significantly. October 24 signaled the first day of panic among investors. Known as “Black Thursday,” a record 12,894,650 shares were traded throughout the day. On October 28, the Dow suffered a record loss of 38.33 points, or 12.82%. The following day—”Black Tuesday”— held more devastating news for investors as stock prices dropped even more. 16,410,030 shares were traded on the New York Stock Exchange in a single day. The 1929 stock market crash resulted in billions of dollars lost and signaled the beginning of the Great Depression. The Aftermath In the wake of the crash, the U.S. Senate formed a commission responsible for determining the causes. The investigation uncovered a wide range of abusive practices within banks and bank affiliates and spurred public support for banking and securities regulations. As a result of the findings, Congress passed the Banking Act of 1933, the Securities Act of 1933, and the Securities Exchange Act of 1934. New York County Assistant District Attorney Ferdinand Pecora finalized the final report and conducted hearings on behalf of the commission and was later selected as one of the first commissioners of the SEC. Federal Securities Laws and Regulations The American banking systems suffered significantly in the wake of the stock market crash, as approximately one in three banks closed their doors permanently. Following the crash, the U.S. government imposed tighter rules and regulations on the financial industry. As securities evolve, regulatory agencies are responsible for imposing up-to-date regulations to protect investors. Banking Act of 1933 The Banking Act of 1933 (the Banking Act), implemented by Congress on June 16, 1933, signaled the start of many changes in the securities industry. First, the Banking Act established the Federal Deposit Insurance Corporation (FDIC), created to provide deposit insurance to depositors in United States depository institutions in an effort to restore the public’s trust in the American banking system.  Glass-Steagall provisions Four sections of the Banking Act—referred to as the Glass-Steagall legislation—addressed the conflicts of interest uncovered by Ferdinand Pecora during his investigation into the stock market crash of 1929. The Glass-Steagall legislation sought to limit the conflicts of interests created when commercial banks are allowed to underwrite stocks and bonds. In the previous decade, banks put their interest in promoting stocks and bonds to their own benefit, rather than considering the risks placed on investors. The new legislation banned commercial banks from: Dealing in non-governmental securities for customers; Investing in non-investment grade securities on behalf of the bank itself; Underwriting or distributing non-governmental securities; and Affiliation or employee sharing with companies involved in such activities. On the other side, the legislation prohibited investment banks from accepting deposits from customers. Deterioration and reinterpretation of Glass-Steagall provisions The separation of commercial and investment banks proved to be a controversial topic throughout the financial industry. Only two years after passing the Banking Act, Senator Carter Glass—the namesake of the provisions—sought to repeal the prohibition on commercial banks underwriting securities, stating that the provisions had unduly damaged securities markets.  Beginning in the 1960s, banks began lobbying Congress to allow them to enter the municipal bond market. In the 1970s, large banks argued that the Glass-Steagall provisions were preventing them from being competitive with foreign securities firms. The Federal Reserve Board reinterpreted Section 20 of the Glass-Steagall provisions to allow banks to have up to 5% of gross revenues from investment banking business. Soon after, the Federal Reserve Board voted to loosen regulations under the Glass-Steagall provisions after hearing arguments from Citicorp,...

Continue Reading

Feb 10, 2021

What to Do When Your Financial Adviser Fails to Act in Your Best Interest

Is hiring a financial advisor in your best interest? In many cases, it may be when it comes to your investments. According to the SEC, approximately 6 in 10 households in the United States own securities investments. With more Americans investing, there is an increased need for financial advisors who can provide valuable insight into how best to invest and manage your accounts.  A financial advisor acting in your best interest is one of the best assets you can have when it comes to your investments. However, not all financial advisors live up to this standard.  Before you hire a fiduciary to represent your investment interests, it is important to first understand the duties your financial advisor owes you. By doing so, you will be better equipped to recognize when yours may not be acting in your best interest.  If you need help determining whether a financial advisor acting in your best interest and what you can do if they did not, we want to help. The Law Offices of Robert Wayne Pearce, P.A., has represented countless defrauded investors who have fallen victim to the actions of their advisors. Investment loss attorney Robert Wayne Pearce has over 40 years of experience handling a broad range of securities and investment disputes. Give us a call today to see what we can do for you. Fiduciary and Financial Advisor: Your Best Interest Is What Matters Most When you hire a financial advisor to provide you counsel regarding your investments, you expect that they will act in your best interest. The relationship between you and your advisor is a “fiduciary” relationship.  This fiduciary relationship requires a financial advisor to act in a certain manner when it comes to their clients’ investments. But what exactly is a “fiduciary duty,” and how do I know if my financial advisor owes me a duty to act in my best interest? We’ll dive into these questions in more detail below.  Fiduciary Duties: An Overview A fiduciary is someone who acts on behalf of someone else. In the investment context, a financial advisor who is hired to provide counsel and advice regarding their investments is a fiduciary. At its core, a fiduciary relationship relies on trust and good faith between the advisor and the client.  Being a fiduciary means that an investment advisor must act in their client’s best interest, putting their client’s needs over their own needs. In short, a fiduciary duty is a legal responsibility owed by the fiduciary (financial advisor) to act in the principal’s (client) best interest.  A fiduciary’s main duties are to: Put the client’s best interests first, ahead of their own; Avoid conflicts of interest or disclose them to the client as soon as they arise; and Act with honesty, good-faith, and loyalty toward the client.  Failure by a financial advisor to act in your best interest may constitute a breach of their fiduciary duty. This can result in serious liability for the advisor. Is Everyone a Fiduciary?  No, not everyone will be considered a fiduciary.  A fiduciary relationship is a special relationship that arises only in specific circumstances. The Investment Advisers Act of 1940 requires only registered investment advisors to abide by fiduciary obligations to act in a client’s best interests. Thus, all investment advisors who are registered with the SEC or a state securities regulator are fiduciaries. Broker-dealers and stockbrokers, on the other hand, are not fiduciaries. The New “Best Interest” Rule: A Replacement for the Suitability Standard Until recently, there was a lower standard of care that applied to most brokers and agents. This was governed by FINRA Rule 2111, otherwise referred to as the “suitability” standard.  Unlike a fiduciary standard of care, suitability required only that a broker-dealer make investment decisions that were “suitable” for his or her client based on the client’s investment objectives. They did not have to put their client’s interests ahead of their own. Further, they were free to recommend products that might benefit themselves, so long as the product was suitable for the client. This changed on June 30, 2020, when the SEC enacted Regulation BI—the Best Interest Rule. Now, regular stockbrokers also have a duty to act in the best interests of their retail clients when making recommendations about their investments. Specifically, Regulation BI imposes four obligations upon broker-dealers and associated persons:  Provide disclosures to customers regarding the relationship at the time of or before making any recommendations;  Exercise due care, or reasonable diligence, care, and skill, in making recommendations to customers;  Establish, maintain, and enforce procedures and policies to address potential conflicts of interest; and  Establish, maintain, and enforce procedures and policies to achieve compliance with Regulation BI.  If you feel your financial advisor or broker has failed to act in your best interest and live up to their obligations, seek help promptly from an experienced attorney. How Do I Know If Someone Is a Fiduciary? The easiest way to know for sure if a financial advisor is a fiduciary is to ask them. You can also check on the SEC Investment Advisor Database for federally registered investment advisor firms. Another way is to ask about an advisor or advisor firm’s pay structure. If an advisor is paid based on commission, he or she is most likely not a fiduciary. Fiduciaries usually work on fees only, so an advisor who advertises that they work on commission may not be acting as a fiduciary. But again, remember that even if your advisor is not a federally registered investment adviser held to a fiduciary standard, they still owe you certain obligations. All stockbrokers now have a duty to act in the best interests of their retail investors when making recommendations regarding their investments. Breach of Fiduciary Duty and What to Do If Your Financial Advisor Doesn’t Act in Your Best Interest A fiduciary breaches his or her duty by acting in their own interest rather than in their client’s interest. Additionally, failure to act in your best interest may give rise to a...

Continue Reading