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. One final but important 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.