Registered investment advisors are compensated for providing financial advice and investment management. They are held to a high fiduciary standard.
Advisor misconduct often goes undetected and unreported. You may need to consult an attorney if you suspect that your advisor is not meeting their professional obligations.
What is an Investment Advisor?
Although people often use the terms “broker” and “investment advisor” interchangeably, they perform somewhat different roles and are held to somewhat different standards.
Generally, investor pay stockbrokers commissions for each executed securities transaction. On the other hand, investors pay advisors a flat fee or percentage of their assets for the advisors’ management of their portfolios. Registered investment advisors must register with the Securities and Exchange Commission (SEC) or state securities regulators. According to FINRA, the SEC regulates investment advisors who manage $110 million or more in assets, while state regulators have jurisdiction over advisors with less than $100 million in assets under management.
To qualify as an investment advisor, the advisor must be engaged in the business of providing investment advice, making investment recommendations, or furnishing analyses on securities, among other things.
Registered investment advisors can include money managers, investment consultants, financial planners, general partners of hedge funds, and other professionals who are paid for providing securities advice. SEC-registered investment advisors manage more than $67 trillion in assets for around 30 million clients.
Registered Investment Advisors and the Fiduciary Standard
Registered investment advisors owe fiduciary duties to their clients under the Investment Advisors Act of 1940. This standard mandates that registered advisors must:
- Always put the client’s best interests ahead of their own
- Disclose any possible conflicts of interest to their clients
- Act in an ethical manner in all of their business dealings
Types of Investment Advisor Misconduct
A recent Annual Report from the SEC’s Division of Enforcement found that nearly one-quarter of the Commission’s enforcement actions were against investment advisors. Some of the most common enforcement actions involve the following types of advisor misconduct:
- Conflicts of interest, including undisclosed conflicts, fees and expense allocations, fee suitability, and trade allocation practices.
- Failing to obtain best execution (i.e, the most favorable prices) for securities transactions.
- Improper trading practices
- Failure to make proper disclosures
- Failure to register as an investment advisor
- Misappropriation of client funds
- Failure to safeguard client information
Recovering Investment Losses Due To Advisor Misconduct
Suspected advisor misconduct can be reported to the SEC. The SEC may perform an investigation and take disciplinary action on behalf of investors that results in the recovery of investment losses. However, as the SEC notes, investors who do recover money may receive significantly less than their losses.
If you lost money due to investor advisor misconduct, you may also want to consider taking private legal action against the advisor and the firm they work for. The Business Trial Group’s securities attorneys have helped investors recover millions of dollars in losses caused by advisor fraud and misconduct. We handle these cases on a contingency-fee basis, so you pay only for results — and don’t have to worry about expensive retainers or high hourly fees.
Learn your legal rights and how our attorneys may be able to help you during a free case review.