You’ve decided to work with an investment adviser, instead of a stockbroker, in part because that adviser proudly told you they act as a fiduciary, prioritizing your interests above all else. This adviser also claimed that a broker was allowed to put their own interests ahead of yours and wasn’t required by law to honor a fiduciary duty to you. Now, some or all of your savings are gone, leaving you wondering what happened. How did this person – who told you that your interests were of paramount importance – manage to cause your losses? It could well be the simple operations of the markets as investments in legitimate enterprises tend to fluctuate in value, depending on a variety of factors. But your financial losses could also be the result of the adviser’s lousy advice, for which they can and should be held responsible.
Your Investment Adviser Owes You A Fiduciary Duty
Your investment adviser was right – they are held to a fiduciary standard as a matter of law. But what they didn’t tell you is that they consider that duty for marketing purposes alone. When it’s time to actually do the job, they’re going to sell you on ideas that line their pockets first. Unfortunately, greed will always serve to corrupt a number of people and lead to bad results.
Determining whether the investment advice offered was appropriate for you isn’t terribly difficult for a disinterested party to determine. Attorneys, experts, and subsequent financial professionals are all capable of reviewing a portfolio and reaching a conclusion regarding the quality of the adviser’s work.
But Your Investment Advisor Might Have Breached That Fiduciary Duty By Trying To Make Accountability Impossible
An insidious, but common, breach of fiduciary duty is often found buried in the advisory services agreement(s) you signed when you hired the adviser. The language of those agreements could potentially serve to prevent you from ever seeking a recovery from the adviser who acted wrongfully.
Had you decided to do business with a stockbroker, your efforts to recover the money they lost you would proceed before a panel of arbitrators in the Financial Industry Regulatory Authority’s (“FINRA’s”) arbitration system. While not perfect, the FINRA arbitration program offers modest expense and a known structure for fact-finding and evidence presentation. FINRA prevents its members from including class-action waivers or hedge clauses meant to scare investors away from bringing claims. An example of a hedge clause we see too often is a provision that says, “If you bring a claim against me and lose, you’ll pay my legal fees.” FINRA members are barred from forcing you to travel across the country for the arbitration. They’re also forbidden from including choice of law provisions that would deprive you of rights your local law would otherwise provide.
Your investment adviser isn’t subject to such explicit prohibitions. That said, it is not uncommon for investment advisers to use the contract that you signed as a shield against liability. Too often, investment advisers attempt to:
- Require you to select an arbitration forum that could alone cost you hundreds of thousands of dollars just to have your claim heard;
- Include contractual terms that require you to travel across the country to participate in the arbitration for a chance to recover your money;
- Forbid you from participating in class action lawsuits; and,
- Include contractual provisions that would put you at great risk if you attempted to file a claim against them.
In short, while your adviser told you (correctly) that they have a fiduciary duty to you, they often violate that duty by making it difficult, if not impossible, to file and prosecute a claim against them.
These are not hypothetical scenarios. In fact, they are so important that they gained the attention of the Securities and Exchange Commission, which addressed the issue in a report issued in June 2023. Late last year, the SEC’s Office of the Investor Advocate’s year-end ‘2023 Report on Activities’ included the Ombuds’ message in which she recommended that the SEC consider “temporarily suspending the use of mandatory arbitration clauses in advisory agreements until further exploration of the associated costs and benefits to advisory clients is undertaken.” What the SEC itself will do with that recommendation remains to be seen. However, the fact remains that countless investors may find themselves subject to fundamentally inappropriate dispute resolution requirements until, and unless, the regulators step in to level the playing field.
The vast majority of investment advisers mean their clients no harm. It’s a business relationship that, in an ideal world, provides benefits to both adviser and client alike. The problems with investment adviser arbitration are increasing thanks to the fact that the number of investment advisers is growing (44% growth in ten years according to the SEC), and the number of clients has grown accordingly.
Do yourself a favor and if you’re already using an investment adviser, review the terms of your agreement. If things go wrong, are the dispute resolution terms in your agreement fair? If not, and if the adviser won’t change those terms, you may want to consider whether you want to continue to do business with them. If you’re considering hiring a new investment adviser, check the agreement for the same thing: what happens if they violate their duty to you? If you find that you’d have to travel across the globe just to pursue your claim, consider whether that adviser really has your interests at heart.
Our Team Has Experience With Investment Adviser Claims
As the number of advisers and advisory clients steadily increases, we are receiving more and more calls from investors questioning whether they were the victim of an adviser’s wrongdoing. We have experience in not only working through the investment portfolios, but the advisory contracts themselves, and helping investors determine whether they can, or should, pursue a claim. And our input in that process costs the investors nothing until they decide to hire us to pursue a claim. If we need an expert’s help in assessing the case, expenses can be incurred in the claim review process, but our time and input before we’re hired is free.
Advertising a fiduciary duty is great marketing. Honoring the duty is more difficult. If you believe you’ve been the victim of your investment adviser’s wrongdoing, let’s discuss your particular circumstances.
For more information or to seek counsel from our investor claims group, please reach out to request a consultation or call us at 216-696-1422.
