When a financial advisor's behavior falls below the accepted standard
of practice in the financial services industry, he/she may be committing
financial malpractice, a form of professional negligence that can cause
significant financial harm to an investor.
What is Financial Malpractice?
Malpractice in any form is defined as improper, negligent, or illegal professional
conduct or activity. While most cases of malpractice are focused on legal
and medical industries, financial malpractice is a growing concern in
the financial services industry. Financial professionals and advisors
owe a duty of care to their clients who entrust them with their money
for safe investments. Financial advisors must comply with ethical conduct
and practices that protect a client's investments, putting their client's
best interest above their own. The investment fraud attorneys at Meyer
Wilson commonly see cases of financial malpractice and negligence. Common
forms of financial malpractice include:
- Failing to make investment recommendations based on the client's best interest
- Making misleading or false statements
- Failing to execute transactions or trades as ordered
- Failing to advise clients of conflicts of interest
- Charging excessive fees
- Committing investment fraud or theft
Some financial advisors try to sway a client's investment decisions
based on their own best interest, rather than the client's best interest.
Examples of this often include suggesting that a client use the equity
in their home to buy life insurance, recommending a fixed indexed annuity
without knowing anything about the client, and excessive trading. In such
cases, a financial advisor's main interest is making more commission,
rather than protecting their client's investments. Financial advisors
who don't know or care about their clients' financial standing
and investment abilities cost clients significant financial losses.
To avoid financial hardship and losses, investors should watch for red
flags that may signal financial malpractice. A professional financial
planner will ask lots of questions about a client's income, assets,
debts, and financial abilities to invest. Diversification is a basic fundamental
principle of any investment portfolio. Investors should be wary of advisors
who recommend putting all funds into one investment. This is a red flag
that means the investor is focused on his/her commissions, rather than
the client's investments.
Financial malpractice often results in investor claims and FINRA arbitration
claims filed by
investment fraud attorneys on behalf of the client.
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