What are common types of broker/investment advisor misconduct?
A: Some examples of the most frequent type of broker/advisor misconduct include:
-Mis-stating the safety and/or anticipated performance of the recommended investment(s).
-Failing to adequately explain the nature and risks of the recommended investment(s)
-Recommending investments which are not appropriate for the client’s age, income, investment goals and/or risk tolerance
-Recommending variable annuities for funds that are already tax-deferred (such as pension or 401(k) funds)
-Recommending variable annuities for seniors
-Replacing one life insurance policy and/or variable annuity contract with another
-Excessive trading within a customer’s account (for example the repeated buying and selling of a particular stock or stocks in order to generate commissions)
-Over-concentrating funds into one type of investment and/or market sector
-Recommending exotic and complex investments such as hedge funds, commodities, derivatives and/or options to customers who do not have the knowledge to understand such investments, nor the resources to bear the loss of their entire investment
-Recommending illiquid and speculative investments such as real estate limited partnerships and/or real estate tenancies in common to customers who require access to their money, and cannot afford to lose their entire investment.
What are possible warning signs that I may have a problem with my financial advisor?
Your financial advisor promises you a guaranteed high income and/or a guaranteed return on your investment, with no downsides. In investments, as in life, there are no guarantees, and everything has a downside..
-You receive a “hard sell”. Your money is important. You deserve enough time to be able to make good and informed decisions. If an advisor pushes you to act immediately, and/or to sign paperwork on the spot without reading it, there is probably something important that you are not being told.
-You are recommended to invest in variable annuities. Variable annuities are one of the most heavily sold investment products. They are one of the most expensive type of investment products for the customer. Variable annuities also are one of the most profitable products for the insurance companies who issue them, and the brokers who sell them. They are very complex products and not appropriate for many people, including seniors and people whose funds are already tax-deferred.
-Get more than one opinion
-Pay attention to how your advisor gets paid. Many advisors are paid on a commission, based on the product they sell. Other advisors are paid an annual fee based on the amount of assets under management. Still others are paid an up-front fee for their advice, but are not compensated based on selling a particular type of product. Knowing how your advisor is being paid can help you determine whether the advisor is acting in your best interest. Just remember, nobody works for free.
-Don’t put all your eggs in one basket. Having all of your assets in any one type of investment, whether it be a variable annuity, real estate tenancy in common units, or stocks, is dangerous.
-If you don’t understand it, don’t buy it. Many customers are sold investments they do not understand. They may be told by their advisors, “trust me”, or “you don’t need to understand it” While you are entitled to trust your financial advisor, you will be less vulnerable to abuse if you understand what you are buying. A competent, ethical advisor will take the time to fully explain the investment(s) to you.
-Read the fine print. Often, when advisors sell investments, clients are given a large amount of pre-printed forms to sign, just as in a real estate closing. Companies will sometimes bury important information in the “fine print”. Take the time to thoroughly read each document. Ask questions about any items you do not understand. A competent, ethical financial advisor will give you sufficient time to do so.
-Don’t sign blank forms. If your advisor asks you to sign forms that are not completely filled out, do not do it. You have no idea, nor any control, of what may be inserted into the blanks after you have signed.
-A defined benefit pension is extremely valuable. Do not give it up lightly. If you are fortunate enough to have the right to a defined benefit pension, be very wary of any financial advisor who tells you that you are better off giving it up for a lump sum. A defined benefit pension provides absolute lifetime security. Most pensions are insured by the federal government. Few investments can duplicate that.
-Be wary of early retirement pitches that promise too much. As companies downsize, many people are offered early retirement packages. The decision of whether to take early retirement is significant. Many people cannot afford to retire early. If your advisor is promising you a rosy scenario for your early retirement, with no downsides, you are probably not being given all of the facts.
I feel so stupid. Isn’t this all my fault?
Don’t be so hard on yourself. After all, if you knew everything there was to know about how to manage your money, you would not have needed a financial advisor in the first place. A financial advisor has the same duty to you as a doctor or lawyer -the duty to act only in your best interests. Just as you are entitled to trust your doctor, you are also entitled to trust your financial advisor. Besides, even the smartest person in the world cannot make an informed decision if they are not given all the facts.
I don’t trust anybody anymore. What do I do with my money now?
Finding a competent advisor can be a challenge. Here are a few suggestions:
-Watch out for the red flags and potential problems discussed above. If you see one, go elsewhere
-Check out your prospective advisor at www.finra.org. A BrokerCheck Report, available at no charge, at www.finra.org, will disclose whether other customers have made complaints against the prospective advisor, and how those complaints were resolved. It will also disclose where your prospective advisor has worked, and how often he or she has changed firms.
-Consult with multiple advisors before making a decision.
-Bring a family member or friend to your appointment with the prospective advisor for a second opinion.
I can’t afford a lawyer. What should I do?
Many attorneys who handle customer investment cases, including the Law Offices of Melinda Jane Steuer, will take your case on a contingency basis. This means that you will not pay anything up front. The attorneys will receive a percentage of the recovery, if any. If there is no recovery, there is no fee.
What recourse do I have?
If you feel you that your financial advisor may have done something wrong, you may file a complaint with the Financial Industry Regulatory Authority and/or the Securities and Exchange Commission. You may also wish to consult with an attorney about your rights. The Law Offices of Melinda Jane Steuer offers free consultations.
How does the process of filing a lawsuit work?
A lawsuit starts with the filing of a complaint, if it is in court, or with a claim if it is in arbitration. When you opened an investment account, you probably signed a form agreeing to binding arbitration of disputes with your advisor and their firm. Such agreements are usually enforceable. If your dispute goes to arbitration, there will be a hearing in front of a panel of three arbitrators, one of whom is affiliated with the securities industry. They will make a decision which is final and binding. The arbitration process takes approximately 18 months. If your dispute is heard in court, you will have the right to a jury trial, and to appeal. A case in court usually takes approximately 18 -24 months to be resolved, but can sometimes take longer. Most cases, whether in court or in arbitration, settle before trial. However, you should not file a lawsuit assuming that your case will settle.