Misconduct is an unfortunate reality of the securities industry, but knowing your rights is imperative to taking swift action when a dispute arises
When it comes to working with financial advisors, it’s essential to know your rights. Many financial advisors do not have the best interests of their clients at heart and are willing to take unethical and illegal actions in order to increase their profits.
Even if your financial advisor is well intentioned, they may be unknowingly violating your rights by not fully informing you of the potential risks of your investments or they may be placing you in investments grossly unsuitable for your financial goals.
With CNBC reporting that 20% of financial advisors have either customer complaints, regulatory violations, or a criminal record, it’s never been more important to know if your advisor is treating you fairly and managing your investments in a legal manner.
Understand Your Rights
According to the Financial Industry Regulatory Authority, or FINRA, investors have a variety of specific rights that financial advisors must not violate. These include:
- To receive, on request, information about the work history and qualifications of your financial advisor, as well as information about the firm itself
- To discuss account problems with the proper individual at an advisory firm, whether that be the branch manager or a member of the compliance department
- To receive account statements that are accurate and understandable
- To have the ability to access your funds in a timely manner and be informed beforehand what, if any, restrictions exist
Watch out for Prohibited Conduct
FINRA also lists a variety of prohibited activities for financial advisors and others working in the investment and securities industry. If you suspect your financial advisor may be up to no good or isn’t properly communicating with you in regards to your investments, watch out to ensure they are not violating FINRA’s Code of Conduct. Prohibited conduct includes:
- Switching a customer from one mutual fund to another without legitimate reason
- Removing funds or securities from a customer’s account without their permission
- Failure to disclose or misrepresentation of an investment
- Guaranteeing customers will not lose money on a particular investment
- Purchasing or selling a customer’s investment with inside information
- Charging excessive fees or commissions on an investment
The Most Common Issues
Though financial advisors and advisory firms can make a number of mistakes when it comes to properly educating customers about their investments and handling their money properly, two complaints are heard by FINRA more than all others:
- Misrepresentation: not informing investors of the facts of an investment, including the potential investment risks, fees/charges, pertinent financial information about the company a customer is investing or plans to invest in.
- Unsuitability: recommending or suggesting that an investor purchase a security that is not suitable due to the customer’s age, financial situation, or investment experience. For example, recommending that a 75-year old retiree with limited savings invest in high risks stocks which they know little about.
More Things to Watch Out For
Though slightly less common, these are also important indicators of unethical activity among brokers and financial advisors:
- Churning: When an advisor unnecessarily trades stocks simply to increase commissions
- Selling dividends: When an advisor advises a client to buy an investment to profit off of an upcoming dividend. Instead of the customer profiting, the customer will usually be buying an overpriced investment while the advisor profits off of the commission.
With so many ways for financial advisors to profit off your investments at the expense of your financial well-being, it’s essential to be prepared, informed, and ready to take action. If you suspect that you have been a victim of broker misconduct, contact Silver Law Group today.