Is Your Financial Advisor Committing Malpractice?

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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