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.