If you are like most investors, you read the brochures and advertising materials where brokerage firms want to gain your trust (and your assets) by convincing you that they can help you save for your retirement, keep your money safe and secure, assist you in making wise investments, and advise you in making other critical financial decisions. In doing so, many firms suggest in their brochures, websites, commercials, and other advertising or marketing material that they put their client’s interests first.
If you are like most people, you probably just assumed that was the case. Similar to your choice of another professional such as a doctor, lawyer, physician, or accountant, you may have just assumed that your financial advisor and the firm they work for and that you trust with your family’s assets was always on your side. For many firms and many financial advisors that has and always will be the case, regardless of the legal or ethical provisions in place that may or may not strictly require them to do so. Unfortunately, in reality, and in practice, not all firms or all advisors adhere to those standards or those principles.
What Are Some Financial Advisor Conflicts of Interest?
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While many financial advisors and firms do act in the best interests of their customers, not everyone in the financial services industry is or has been legally obligated to do so. Many firms and professionals hold themselves out as doing so, but in reality, they are merely offering advice to their clients within compensation structures that are misaligned with their customer’s best interests. What’s more, in some instances, these conflicts do not always have to be disclosed.
So you might ask, when does a financial advisor create a conflict of interest? The short answer is that he violates his conflict of interest when he puts his interests or goal before his clients. The most common way this happens is when the advisor sells a financial product that has a high commission or fee which is not in line with the clients’ investment objectives or risk tolerance. Another way is when the advisor pushes a product that he shares a management fee over one he doesn’t when he is already paid a fee to manage funds.
An experienced investment fraud lawyer is the best person to accurately determine if an advisor created a conflict of interest. At Haselkorn & Thibaut, our lawyers have over 45 years of experience and offer a free consultation for clients to review their portfolios. Call us today or use our review form to get started.
PIABA Reports on Financial Advisor Conflicts of Interest
In March 2015, the Public Investors Arbitration Bar Association (PIABA) published the PIABA Conflicted Advice Report wherein they claimed nine major brokerage firms used marketing and advertisement materials implying that they put their customers’ interests first, but when it came to arbitrating conflicts between the firms and disgruntled clients, they routinely claim in their defense that their advisors do not operate under a fiduciary duty. While arbitrators are not likely to make decisions in cases based solely on an advertisement, it could be one of the elements of the overall relationship and it could help arbitrators looking at the reasonable expectations of the parties.
As the former President of PIABA noted the report reflected a huge disconnect where some brokerage firms advertised as though they are trusted guardians of their client’s best interests, but when it came to arbitrating resulting disputes, that was not necessarily the standard. In April 2016, the Department of Labor (DOL) sought to address some of these concerns with a conflict of interest rule that is intended to help protect investors by requiring all who provide retirement investment advice to plans and IRAs to abide by a fiduciary standard, putting their clients best interests before their own profits.
Covered investment advice is defined as any recommendation to a plan, plan fiduciary, plan participant and beneficiary and IRA owner for a fee or other compensation, direct or indirect, as to the advisability of buying, holding, selling, or exchanging (or managing) securities or other investment property including as to any rollovers or distributions from same. This includes, among other things, recommendations on investment policies or strategies, portfolio composition, selection of persons to provide investment advice or investment management services, selection of account arrangements, or recommendations relating to rollovers, transfers, distributions, as well as the destination for same.
What is still not covered Education about retirement savings and general financial and investment information that does not rise to the level of a recommendation. Also not covered are general communications such as general marketing materials. In the DOL’s view, disclosure alone is not sufficiently protected in the absence of other regulatory safeguards. Compliance with the new requirements will not begin until April 2017. What remains to be seen is what (if anything) will be done to address investment advice outside of retirement plans.
Have You Experienced Financial Losses?
If you have experienced a loss in any of your investment accounts and you are concerned that your financial advisor or firm was not focused on your best interests, or may have been subject to one or more conflicts of interest, please contact the securities arbitration and investment litigation lawyers immediately for a free consultation.
Many investors have experienced recent losses associated with oil, gas, and other energy sector securities and they have come to discover that the firms they have relied upon were not necessarily on their side, nor did they have their best interests in mind. If you have had a similar experience or any other issues or questions regarding your investment accounts, please contact Jason Haselkorn or Matthew Thibaut, your securities arbitration and investment litigation, lawyers.
