Exploring Regulatory History and Complaints Against Arete Wealth Management

Exploring the Seriousness of the Allegations and Their Impact on Investors

As a seasoned financial analyst, I understand that trust is a leading currency in the finance world. Notably, the Chicago-based financial advisory firm, Arete Wealth Management, has recently found itself under scrutiny. With four disclosure events and two arbitrations according to their FINRA BrokerCheck profile (CRD#: 44856), its reputation is under question.

The seriousness of these allegations cannot be understated. It is alleged that a significant slice of the complaints derived from a single dismissed advisor. The largest blow was a $75,000 arbitration loss in February following a $515,000 arbitration claim in 2021. The claims were sparked by GWG Holdings Inc.’s bankruptcy – a company whose bonds Center Street Securities Inc., (acquired by Arete Wealth), was actively selling – leading to understandable concerns among investors.

Reports reveal that the majority of settled claims came from one terminated advisor. Disclosed settlements from the first quarter of 2024 total more than $1.1 million, the aftermath of investor claims against the firm.

This brings us to perhaps the most important question: how do these allegations impact investors?

The past events shook investor confidence in the firm, compounded by the looming fear about the value of the sold GWG bonds. More importantly, the mentioned bankruptcy undercut these bonds’ value, leaving investors with a bitter taste for a potential loss.

Focusing on the Financial Advisors’ Backgrounds and Previous Complaints

Digging deeper into the professional history of the advisors who have affiliation with the troubled firm is vital. Take Jonathan Jay Greenfield for instance. His BrokerCheck profile indicates that he has been part of twenty regulatory events throughout his career. Greenfield was barred from associating with any FINRA member in any capacity back in 2016 due to allegations of making material misrepresentations and omissions to customers.

The fallout from past complaints can be seen in the reported arbitration losses and settlements totaling more than $1.1 million in the first quarter of 2024.

Such backgrounds set an alert for both investors and prospective advisors. It hammers home the importance of a thorough review into brokers under consideration. A sound piece of advice offered by Warren Buffet resonates well here, he once said: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Briefly Explaining the Involved FINRA Rule in Layman’s Terms

FINRA, the Financial Industry Regulatory Authority, exists to protect investors and safeguard market integrity. Using their BrokerCheck tool, anyone can access information about brokers and their history.

In simple terms, FINRA rules require broker-dealers to perform due diligence before recommending securities to customers and adequately guide their brokers in conforming to federal securities laws and FINRA rules. When they fail to do this, there’s a violation of supervisory duties. This very rule was violated by Arete Wealth Management, resulting in their censure and a $25,000 fine by FINRA in 2012.

Consequences and Lessons Learned

The consequences for Arete Wealth Management extend beyond financial penalties. Each allegation chips away at the firm’s reputation, potentially injuring its future viability. For investors, dealing with financial and emotional stress adds another burden to bear.

From an investor’s perspective, it underscores the importance of due diligence. As an investment proverb suggests, “Trust, but verify.” Never place your money with a financial advisor without conducting your own research – a quick fact check can spare you future disappointments.

According to the United States Securities and Exchange Commission (SEC), nearly 7.3% of financial advisors have misconduct records. However, only half of those advisors lose their jobs after misconduct, and nearly half of those who do, get hired within a year by another firm.

In conclusion, the cases with Arete Wealth Management serve as an educational example for investors. It stresses the significance of knowing who you trust with your funds and inspiring due diligence in your financial decisions. Passion alone can’t drive investments, sometimes a fair degree of caution is a prerequisite.

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