Financial advisors are supposed to have their clients’ best interests at heart. That is part of their fiduciary duty. Unfortunately, many financial advisers are making recommendations based on their commissions.
In other cases, you’re advised by a banker to sell your investments and buy an annuity. They may be encouraged to promote this product or simply be giving advice that isn’t right for your situation. Yet both scenarios can cost their clients a lot of money. Here are a few tips on how to get recourse for bad financial advice.
Know What the Adviser Is Allowed to Do
Registered investment advisers have a legal obligation to recommend what is in the best interest of clients, share all relevant details, and avoid conflicts of interest. No non-registered agent is allowed to provide investment advice except for two limited carve-outs.
Broker dealer representatives can provide advice and offer investments for sale. They operate under a suitability standard that is lower than the fiduciary duty standard investment advisers must meet. A CPA or attorney that provides advice in the normal course of their work is also permitted under the law. They are not allowed to present themselves as an investment adviser.
You may be advised to buy an annuity from an insurance license. Know that an annuity is considered an insurance product, not a stock, bond or mutual fund. An insurance agent can recommend you buy an annuity, but it is illegal for them to advise you to buy, sell or hold any investment like stocks, bonds or mutual funds.
Only work with financial advisers who have to meet the financial fiduciary responsibility standard. These are generally certified public accountants, registered investment advisers and certified financial planners. Stay away from financial advisers who are only wealth managers, registered representatives or brokers.
Understand Your Options If Your Adviser Broke the Rules
You can often submit complaints to the Securities and Exchange Commission, but in other cases, you have to take the matter to a state agency. Unfortunately, state agencies are often overloaded with complaints, so they don’t have the resources to properly investigate a legitimate complaint.
Another option is talking to an attorney who specializes in security law violations or senior abuse. The attorneys dealing in senior abuse are the better choice if you or your loved one was scammed out of their money by someone who claimed it was a safe investment. This is fairly common with annuities, and that’s why many financial firms have been sued for questionable annuity sales.
Know When You Can Sue
You can only sue the adviser when they’ve made specific mistakes or taken certain unethical actions. For example, you can sue them for churning, buying and selling excessively to generate excessive commissions. You can sue them for failing to perform due diligence before recommending an investment. Selling fake securities or selling securities that aren’t held by their investment firm are violations of the law that you could sue for.
You can also take action for a failure to diversify your holdings. Take the James Flynn case, for instance. He was permanently barred by FINRA for causing serious damage to a number of clients. His actions included false and misleading representations, unsuitable recommendations, and investment portfolio overconcentration.
For example, he would over-concentrate the client’s account or investments in a single product, though other cases involved over concentration in a single industry. This is often done to get high commissions or other incentives. In this case, you could get recourse by working with an attorney who sues the adviser for investment fraud. For example, annuity fraud cases can result in financial settlements that offset the person’s financial losses.
It is tragic how often people lose money because they were given a supposed tip from a financial adviser that was in the best interests only of the adviser. Fortunately, you may have recourse if they tried to profit from your financial losses.