Registered Investment Advisers
A significant trend in recent years has been stock brokers leaving brokerage
firms and becoming what are known as registered investment advisers. Stock
brokers execute trades for customers and are generally paid commissions
on the securities they sell to customers. But in contrast, investment
advisers are paid compensation for advice they give, which is typically
paid in the form of a flat-fee or a percentage of your investment assets
that they manage.
While it might make sense for you to invest with an investment adviser
instead of a broker, depending on your needs and expectations, the fact
is that investment advisers sometimes make mistakes or engage in misconduct
just like stock brokers sometimes do. However, evaluating potential investment
loss claims against an investment adviser can involve a different set
of questions and factors than claims against a traditional stock broker.
For example, almost all customer cases against brokerage firms are subject
to mandatory arbitration through the Financial Industry Regulatory Authority,
known as FINRA. Claims against investment advisers, on the other hand,
might be decided in any number of different forums depending on the contract
that you signed with an investment adviser. This might include alternative
dispute resolution forums like the American Arbitration Association, also
known as AAA, or JAMS, or you might be able to bring your claims in court.
An important part of a case against an investment adviser might involve
representations made by the adviser in a document known as the Form ADV
Part II. This document, often referred to simply as the brochure, is a
required document that advisers must provide to customers and which describes
various things including the adviser’s background, the adviser’s
method of analysis, investment strategies and risk of loss, and how the
adviser is paid, and when and how the adviser reviews client accounts.
If an investment adviser fails to follow the representations made in the
brochure and if you suffer losses as a result, you might have claims against
your investment advisor.
Finally, it’s important to note that there are different rules and
regulations that govern investment advisers and that might impact your
ability to recover losses caused by investment misconduct. For example,
while stock brokers often try to deny that they owe any fiduciary duties
to their customers — a contention that I strongly disagree with
— investment advisers unquestionably owe fiduciary duties to their
customers and being a fiduciary means that investment advisers owe a heightened
duty and must always act in the client’s best interests. If you
think you have a potential claim against an investment adviser, give our
law firm a call today. Thank you.