The Gap in Regulatory Coverage for Registered Investment Advisors

By Courtney Werning

Gap in Regulatory Coverage

An investment adviser is an individual or company who is paid for providing advice about securities to their clients. Although the terms sound similar, investment advisers are not the same as financial advisers and should not be confused. The term financial adviser is a generic term that usually refers to a broker (or, to use the technical term, a registered representative).

An investment adviser stands in a special relationship of trust and confidence with, and therefore always is a fiduciary to, its clients. As a fiduciary, an investment adviser has an affirmative duty of care, loyalty, honesty, and good faith to act in the best interest of its clients. There are many circumstances when a financial advisors (ie., a registered representative) may serve as a fiduciary but that determination is typically made on a case-by-case basis.

The U.S. Securities and Exchange Commission (SEC) is currently the regulatory body that oversees investment advisers. The SEC has acknowledged that it has the resources to examine annually less than 10% of the nearly 11,000 registered investment advisers. Nearly two years ago, the Financial Industry Regulatory Authority (FINRA) made a strong effort to promote legislation that would shift the regulator of investment advisers from the SEC to FINRA. FINRA has a much wider scope for regulatory oversight, which is why investment advisers are vehemently opposed to FINRA regulation and prefer to remain under the watch of the SEC. The bill died at the end of 2012, and it seems at this point that FINRA will not be the one to fill the regulatory coverage gap for investment advisers. How then, can we hold our investment advisers accountable to their fiduciary duties?

Currently, investors that have disputes against investment advisers who are not also FINRA members are resolved in court or in non-FINRA dispute resolution forums, which are much more expensive and time consuming than FINRA arbitration. Therefore, recourse for investors who have claims against their investment advisors may be less accessible, despite the fiduciary relationship between clients and investment advisers.

It is important to know what kind of investment professional you are dealing with, as it greatly affects regulatory oversight and the ability and process to pursue disputes against them. The team of investment fraud attorneys at Meyer Wilson can help you determine what your options are for recovery of investment losses. If you would like more information about your potential claim and how our firm can help you recover your losses, call 888-390-6491 today.


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