10/11/2023
New Article Reveals Challenges Faced By Defrauded Investors
The Orlando Sentinel recently published this article that takes a brief but informative look at the process individual investors face when trying to get compensation when they experience losses due to the conduct of their investment professional (stock broker/investment advisor). Colling Gilbert Wright has a department dedicated to pursuing investor losses through the Financial Industry Regulatory Authority (FINRA) arbitration as well as other arbitration forums (JAMS and AAA). We are also active members of the Public Investors Advocate Bar Association (19 years) as well as occupy a leadership position in the American Association for Justice (AAJ) Securities and Financial Fraud Litigation Group.
More investors are learning the hard way that if you have a complaint against a broker or registered investment adviser, it’s going to be tough to get justice, much less to 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 a broker’s disciplinary history, you can use the FINRA database at www.BrokerCheck.org.
Brokers are not required to be “fiduciaries” — that is, to put their 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 rule out the possibility 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 advisers 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 (PIABA) — attorneys who work with investors in these disputes, has made that failing a headline issue. But that’s not the only complaint. They are also deeply concerned about registered investment advisers, who get away with far more egregious behavior.
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 by either the U.S. Securities and Exchange Commission (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. Only one problem: You won’t find a record of any claims or 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 an RIA, you’re in for a long, expensive fight. RIA disagreements are typically sent to private — and very costly — arbitration forums, such as Judicial Arbitration and Mediation Services, Inc. (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 an 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.
BrokerCheck is a trusted tool that shows you employment history, certifications, licenses, and any violations for brokers and investment advisors.
