Investment Advisor Misconduct
While the differences between a stock broker and an investment advisor are technical and extensive under the law, (the two types of professionals exist under completely separate regulatory systems), an investment advisor is a financial professional who gives investment advice for a fee, sometimes charged on an hourly basis, but usually charged on an annual percentage of assets under management. In contrast, stockbrokers generally charge commissions on a per-trade basis, although that changed for a while as brokerage firms tried to blur the distinctions between brokers and investment advisors. Investment advisors also usually have discretion to make investment decisions on behalf of their customers, while stockbrokers generally must obtain their customer's approval before engaging in a trade. Because an investment advisor has discretion over the customer's account, the advisor owes the customer the highest duty of loyalty and due care at all times. Brokers who lack discretion often deny that they owe such duties, although we strongly disagree with that position.One final difference: investment advisors often can or must be sued in court, whereas claims against stockbrokers generally must be pursued in arbitration.
There are numerous ways in which an investment advisor can violate legal and ethical obligations to his or her customer, and most of these overlap with the types of misconduct committed by brokers. The most common types of investment advisor misconduct are:
- Recommending Unsuitable Investments: A great investment for one person might be a foolish investment for another. Each investor has his or her own unique set of circumstances. A 40-year old unmarried surgeon should probably invest very differently from a middle-class parent planning for her kids' college years. A 70-year old retiree on a pension should not invest in the same way as a wealthy 70-year old business owner who is still working. Investment advisors have the duty to ensure that each recommended investment is suitable for that customer in light of factors such as the customer's age, financial status, ability, and willingness to handle risk, investment knowledge and experience, and investment objectives. If you lost money in an unsuitable investment, the investment advisor may be responsible. A qualified Ohio investment fraud lawyer may be able to help you recover part or all of your losses.
- Misrepresenting or Omitting Facts: Some investment advisors lie about things you need to know in order to properly decide whether to invest. Some advisors don't lie, exactly, but they withhold certain facts that might affect your investment decision. And some advisors who misrepresent or omit facts are simply careless. Whether the advisor's misrepresentation or omission is fraudulent or simply negligent, if it caused you to make a poor investment, the advisor may be liable for your loss.
- Over-concentration: An investment advisor generally has the duty to recommend that the customer’s account be diversified among different investments, investment classes, and industries. Proper diversification is one of the best ways to control risk and avoid excessive losses. If an advisor concentrates too much of your portfolio in one type of investment, (such as stocks), or puts too much of your money in only one or two different stocks, or buys too many stocks in same industry, you face a much greater risk of suffering a large loss. For instance, millions of investors lost money beginning in early 2000 because their advisors had over-concentrated their accounts in high-flying technology stocks that plummeted en masse. An investment advisor who fails to recommend a properly diversified account can be liable for some or all of your losses.
- Mutual Fund Sales and Variable Annuity Sales Abuses: There are many ways in which investment advisors betray their customers through the sale of mutual fund shares and variable annuities. While advisors generally don’t receive commissions for giving investment advice, they often have a related brokerage business or enter into relationships with brokers so as to earn commissions from the sale of products to their investment advisory customers. Frequently, such advisors will not disclose their receipt of commissions, a serious breach of their fiduciary duties. Thus, advisors will sometimes switch customers from one fund or annuity to another, at great cost to the customer, for the sole purpose of earning commissions. They will sell variable annuities to customers who shouldn’t own such annuities, again in order to earn high commissions. The desire for high commissions also can prompt unscrupulous advisors to purchase what are known as Class B mutual fund shares for customers who would have qualified for the price breaks available from Class A shares. Advisors who engage in these and other violations involving mutual funds and annuities are guilty of sales abuses that may subject them to liability.
- Misappropriation and Other Criminal Activity: Occasionally, an investment advisor will engage in plainly criminal acts like theft, fraud, and forgery. In essence, the advisor hatches a scheme to steal your money. You have the right to seek recovery for any fraudulent conduct that results in misappropriation of funds by an investment advisor.
WARNING - Deadlines apply to all of these rights of recovery. Delay can result in your claim being time-barred, or in a particular forum refusing to hear your complaints. But these deadlines are complicated. Don't procrastinate in seeking qualified legal assistance. Likewise, don't give up because you assume you've waited too long. Tony Hartman, Jay Salamon, Hugh Berkson, and Henry Kerr at the law firm of Hermann, Cahn & Schneider are experienced Ohio investment fraud lawyers who can look at your case. Contact us. We'll let you know for sure.
The Next Step: Arbitration or Court?
|
