More and more investors are learning the hard way that if you have a complaint against a broker or registered investment advisor, it’s going to be tough to get justice, much less get your money back.
And even if you try to investigate the background of someone who is trying to get you to make a financial decision or investment, you’ll be at a tremendous disadvantage since much of the financial advisory business is not subject to full disclosure about complaints and awards against them.
Brokers are employees of brokerage firms. They are registered and subject to the scrutiny of FINRA – the Financial Industry Regulatory Authority. If you want to check their disciplinary history, you can use the FINRA database at www.BrokerCheck.org.
Brokers are not required to be “fiduciaries” – putting the clients’ interest ahead of their own. They are only required to suggest products in the “best interest” of the client. But that definition does not tule out that a recommendation is also in the interest of a broker, who may be getting a substantial, and often hidden, commission.
Brokers are often referred to as financial advisors, or consultants, or other professional-sounding names. But they are not required to be fiduciaries. They may charge overall account management fees, or commissions, or fees buried in the price of the investments they sell.
If you have a complaint against a broker, you can’t sue! If you read the fine print in your account opening documents, it almost assuredly says that you agree to solve disputes by arbitration. The FINRA arbitration process does not require an attorney but you should have one, as the firm will. The complaint is filed, documents are exchanged – and most cases are settled. Or the dispute goes to a FINRA arbitration panel.
But even if you win, don’t plan to spend the money. FINRA’s most recent statistics show that nearly one-quarter of the awards are never paid out!
The Public Investors Advocate Bar Association – attorneys who work with investors in these disputes, has made that failing a headline issue. But that’s not only complaint. They are also deeply concerned about Registered Investment Advisors, who get away with far more egregious behavior.
Registered Investment Advisors
The person offering you financial advice and selling you products may not be a broker. Instead, he or she may be a Registered Investment Adviser (RIA) who is overseen SEC by either the SEC or the states, depending on how much money they have under management.
By legal definition, a RIA is a fiduciary. But not all of them act to put their client’s interest first – the definition of a true fiduciary.
If you want to learn more about the background, education, and work history of a RIA, you can search at AdviserInfo.sec.gov. (Note: “adviser” is spelled with an “e”.)
Only one problem: you won’t find a record of any claims and arbitration awards against that RIA! Shocking, but the SEC decided years ago not to track the results of complaints, results of arbitrations, or payouts made by advisers who were deemed in the wrong!
Even worse, if you have a dispute against a RIA, you’re in for a long, expensive fight. RIA disagreements are typically sent to private – and very costly – arbitration forums, such as JAMS. Just to get the process started can cost an upfront deposit 10 times as great as a FINRA arbitration against a broker, in addition to legal fees and other expenses. As a result, many cases are deemed too costly for a wronged client to even file against a RIA.
Hugh Berkson, president of PIABA, calls it a great irony that SEC registered advisers — who are by law supposed to be fiduciaries — are allowed to “manipulate the dispute resolution process to avoid liability and exposure.”
So here’s some free investment advice that could save you a lot of heartache. Ask anyone selling you any financial advice or product if he or she is a FIDUCIARY. Ask them to put it in writing on their firm’s letterhead. Ask if FINRA is their process for dispute resolution. If not, you are a sure loser if a disagreement arises.
And if you do have a dispute with either a broker or a RIA, use the search engine at PIABA.org to find an experienced attorney to help you through either process. Otherwise, the deck is stacked against you. And that’s The Savage Truth.