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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 claim for violation of Regulation BI. 

This can, and inevitably does, occur in many situations. But what do you do if you believe your financial advisor has breached their fiduciary duty or failed to act in your best interests?

If your financial advisor has breached his or her fiduciary duty or violated Reg. BI, resulting in financial losses to you, you may have a claim for relief. The best thing you can do is contact an experienced investment loss attorney to help you move forward. These types of cases can be complex.

Thus, having a lawyer can be a great benefit. An attorney can help you gather important facts and evidence, build a case against your advisor, and determine how best to move forward. Ultimately, an attorney can help you recover from the losses you may have suffered at the hands of your trusted advisor.

Financial Advisor Not Acting in Your Best Interest? We Will

When your financial advisor fails to act in your best interest, we will be there to help. Our team will do everything within our power to fight for your rights moving forward. 

Trusting your advisor with your investments is not something you do lightly. When that same advisor betrays your trust and puts your investments at risk, they should be held accountable.

The Law Offices of Robert Wayne Pearce specializes in helping clients through a wide array of investment-related legal disputes. Whether your case requires litigation, arbitration, or mediation, our team has the expertise and resources to take it on. If you have questions about how to move forward, contact our office today for a free consultation. Let’s discuss your case and see what we can do to help you recover.

Author Photo

Robert Wayne Pearce

Robert Wayne Pearce of The Law Offices of Robert Wayne Pearce, P.A. has been a trial attorney for more than 40 years and has helped recover over $140 million dollars for his clients. During that time, he developed a well-respected and highly accomplished legal career representing investors and brokers in disputes with one another and the government and industry regulators. To speak with Attorney Pearce, call (800) 732-2889 or Contact Us online for a FREE INITIAL CONSULTATION with Attorney Pearce about your case.

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