Did Your Financial Advisor Put Their Interests Ahead of Yours?
When you trust a financial professional with your money, you expect recommendations to be made for your benefit — not because the advisor or brokerage firm stands to earn a larger commission, fee, bonus, or other financial benefit.
Depending on the professional’s role and the nature of the relationship, different legal standards may apply. Investment advisers are fiduciaries under federal law and owe duties of care and loyalty to their clients. Broker-dealers are subject to Regulation Best Interest when making securities recommendations to retail customers.
At Mazer Law Firm PC, we represent investors who suffered losses after financial professionals placed their own financial interests ahead of the interests of the customer.
What Is a Fiduciary Duty?
A fiduciary relationship involves a high degree of trust.
For federally regulated investment advisers, the SEC explains that the fiduciary duty includes both a duty of care and a duty of loyalty. The duty applies to the advisory relationship and requires the adviser to act in the client’s best interest.
A breach may occur when a financial professional fails to act with the required care, fails to disclose important conflicts, or places personal or financial interests ahead of the investor.
Examples of Conduct That May Raise Fiduciary-Duty Concerns
Depending upon the circumstances, questionable conduct may include:
- Recommending an investment because it pays the advisor a higher commission
- Failing to disclose important conflicts of interest
- Concentrating too much of an investor’s money in one product or strategy
- Recommending investments that do not fit the investor’s objectives or financial circumstances
- Placing an investor into expensive products when lower-cost alternatives were available
- Excessive trading designed primarily to generate commissions
- Failing to adequately explain important risks
- Recommending an unnecessary annuity replacement or investment exchange
- Failing to monitor an account when the professional had undertaken a duty to do so
- Using an investor’s trust for the financial professional’s own benefit
Conflicts of Interest Matter
A financial professional may receive different compensation depending upon which investment is recommended.
That creates a potential conflict.
Under Regulation Best Interest, broker-dealers making recommendations to retail customers must address conflicts of interest and cannot place their financial or other interests ahead of the customer’s interests. The rule also requires reasonable diligence, care, and skill in making recommendations.
A conflict of interest does not automatically establish wrongdoing. But an undisclosed or improperly handled conflict may become extremely important when evaluating why a particular investment was recommended.
Investment Advisers and Brokers Are Not Always Governed by the Same Standard
The words broker, financial advisor, and investment adviser are sometimes used interchangeably by investors, but legally they may describe different roles.
An investment adviser generally owes a fiduciary duty under the Investment Advisers Act.
A broker-dealer making a securities recommendation to a retail customer is governed by Regulation Best Interest, which requires the broker-dealer to act in the customer’s best interest at the time of the recommendation and not place its interests ahead of the customer’s interests.
Some financial professionals are registered in both capacities.
That is why determining what role the financial professional was acting in at the time can be important.
Warning Signs That Your Interests May Not Have Come First
A relationship deserves closer examination when:
- You were repeatedly sold high-commission investment products
- Your advisor did not clearly disclose how they were being paid
- Your portfolio was concentrated in risky or illiquid investments
- You were encouraged to repeatedly replace existing investments
- You were told an investment was safe when significant risks existed
- Your advisor recommended products that appeared inconsistent with your age or financial needs
- Important information about fees, surrender charges, liquidity, or risk was withheld
- The recommendation seemed to benefit the salesperson more than it benefited you
Brokerage Firms May Also Be Responsible
The individual financial professional is not necessarily the only responsible party.
Depending upon the circumstances, a brokerage or advisory firm may face responsibility for:
- Failure to supervise
- Improper recommendations
- Misrepresentations or omissions
- Conflicts of interest
- Failure to disclose material information
- Negligence
- Breach of fiduciary duty where applicable
- Violations of securities laws or industry standards
Many disputes involving brokerage firms are resolved through FINRA arbitration.
“I Trusted My Advisor”
Many investors blame themselves after suffering a significant loss.
But the very reason people hire financial professionals is to obtain expertise and guidance they do not possess themselves.
The important questions are what the financial professional knew, what was recommended, what was disclosed, what conflicts existed, and whether the recommendation was consistent with the investor’s circumstances.
Get an Independent Review of What Happened
If you believe your financial advisor placed their own interests ahead of yours, an independent review of the account may reveal what actually occurred.
Attorney Glenn Mazer spent more than 20 years in the financial-services industry before representing investors in securities disputes.
Mazer Law Firm PC can review account statements, transaction histories, investment products, commissions, fees, disclosures, correspondence, and other records to determine whether the conduct warrants further investigation.
Speak Directly With Attorney Glenn Mazer
Call (205) 644-3744 for a free case evaluation.
Mazer Law Firm PC — For the Investor.