What to Do If Your Financial Advisor Screws Up

A financial advisor has a fiduciary responsibility that obligates him or her to act in the best interests of the investor, with complete transparency, and in good faith. Violations of fiduciary duties are grounds for complaints.

One of the essential elements of acting in good faith is to follow the investor’s instructions completely.

Ultimately, the advisor must serve the investor, their client, and should be doing it with complete transparency. If an advisor does something else with your money than you have instructed them to, they are violating their fiduciary duties.

Procedure for dealing with financial advisors who don’t follow your instructions

If at all possible, we advise investors not to deal with brokers in the first place. If you must hire an advisor, work with a firm or individual that specializes in only advisory functions, but not brokerage. This leaves you with more control over your wealth.

Put your complaint to them in writing

When you do discover that your financial advisor has violated instructions[1] and is therefore in breach of their fiduciary duties, you must immediately put your complaint in writing.

Keep a record of this complaint and, if possible, send it by registered mail or in a trackable email that shows when the email was opened.

Ask to speak with a manager or supervisor

Countless cases are brought against financial advisory firms for not upholding their own internal policies, resulting in violations of SEC regulations.

It never ceases to amaze us, here at MDF Law, how so many financial advisory firms have the internal policies in place to prevent fraud, then get slapped with a massive fine anyway for simply not enforcing those policies. In almost all cases, the firm swallows up the fine without admitting guilt—often many millions of dollars—instead of fighting it in court because they know they have no case.

By bringing the matter to the attention of the branch manager or a supervisor, chances are higher that the situation will be dealt with expediently.

If in doubt, call us

Sadly, if it was that easy to address financial advisor fraud, there would be no need for securities attorneys[2]. If an advisor is truly fraudulent and not merely negligent, he or she often has other strategies to cover his or her tracks.

When in doubt, it’s always best to hire an attorney with an in-depth understanding of securities regulations. The rule of thumb is that, if one regulation has been violated, often there are others that have been violated as well. A securities attorney can find these and then bring them up with the firm. This is your best option at getting compensation for losses and damages as a result of fiduciary failures.

How to minimize the chances of being defrauded by a financial advisor

Deal only with FINRA-registered advisors

Always deal only with advisors who are officially registered with the Financial Industry Regulatory Authority (FINRA).

FINRA[3] is a self-regulatory body that ensures and enforces ethical behavior on the part of financial advisors and brokerage firms. It is not a government agency although it works closely with the SEC as needed. FINRA can, and often does, arbitrate disputes between investors and advisors. It can also initiate investigations into firms and individuals that appear suspect or have received a large number of complaints.

The FINRA BrokerCheck[4] database maintains a complete record of a broker or advisor’s background so that investors can quickly see if a particular advisor has a history of disciplinary actions by employers or law enforcement agencies.

FINRA lets members of the public lodge complaints[5] directly on their website, and arbitration is resolved much faster than if the case went into the judicial system. An investor also has a wider range of matters they can complain about to FINRA compared to the courts, such as negligence or breach of trust, instead of just fraud.

Do your due diligence

Investors should carry out thorough due diligence before hiring any advisor. This means:

• Ensuring the advisor is registered with FINRA.
• Looking up the advisor’s record on BrokerCheck and noting any disclosures (disciplinary events or other important events).
• Doing an internet search for the advisor’s name. Avoid news articles and go straight to the source of any accusations, such as court filings or statements on the SEC website.
• If still in doubt, hire a background check or a private investigation company to look into the advisor’s history more thoroughly.

Verify any contracts before signing

It is highly recommended that you get any contracts vetted by an experienced securities attorney[6] before signing anything. The benefit of this is twofold:

• An experienced securities attorney will see red flags more easily.
• Knowing that you have recourse to an experienced attorney tends to put advisors on the alert, causing them to err on the side of caution. This is an excellent attitude for advisors to have, in our opinion.

Keep your finger on the pulse, jump on anything suspicious immediately

Fraudsters get away with fraud because red flags are not pounced on immediately. This is a theme that is unfortunately too often repeated in securities fraud cases, whether at an individual or organizational level.

Fraudsters often get away with their crimes because nobody pounced on anything suspicious immediately.

There is no better person to pounce on strange behavior than you, the investor, because it is your money. Follow the procedure above immediately to establish what happened when it appears that your instructions were not followed. And contact us as soon as you need any help.