When financial advisors fail to act in your best interest, the consequences can be devastating. As Warren Buffett wisely noted, “Risk comes from not knowing what you’re doing.” Unfortunately, for investors who trusted American Trust Investment Services with their money, this wisdom came at a high price.
In a significant development for affected investors, the Financial Industry Regulatory Authority (FINRA) has reached a settlement with American Trust Investment Services, requiring the broker-dealer to pay a substantial $266,000 penalty. This amount includes $166,000 in restitution to investors and a $100,000 fine.
The settlement stems from allegations that three financial advisors at the firm violated Regulation Best Interest (Reg BI) by recommending GWG L Bonds to investors without properly considering their financial situations, risk tolerance, or investment objectives. These high-risk investments, which were marketed as safe and income-producing, were fundamentally unsuitable for many of the clients who purchased them.
According to FINRA’s investigation, advisors at American Trust Investment Services recommended L Bonds to conservative investors seeking preservation of capital – a clear mismatch between the product and client needs. In several documented cases, clients were encouraged to place significant portions of their retirement savings into these investments, often exceeding reasonable concentration limits.
The allegations suggest that GWG Holdings, the company behind the L Bonds, operated what amounted to a $1.6 billion Ponzi scheme. Like many such schemes, early investors were paid returns using money from new investors rather than from legitimate business profits. When GWG Holdings filed for bankruptcy in April 2022, thousands of investors discovered their supposedly secure investments were essentially worthless.
For affected investors, particularly retirees with limited ability to recover financially, the impact has been devastating. Many report losing 30-50% of their retirement savings, forcing dramatic lifestyle changes and creating significant financial stress. While the FINRA settlement provides some restitution, it covers only a fraction of the total losses experienced by investors. If you believe you have been a victim of investment fraud or received bad advice from a financial advisor, it’s important to seek help from experienced securities attorneys like Haselkorn and Thibaut, who can help you understand your legal options and potentially recover your losses.
Inside American Trust Investment Services: A pattern of concerns
American Trust Investment Services (FINRA CRD# 26106) operates primarily in the Midwest region, marketing itself as providing personalized financial guidance with a focus on retirement planning. However, this settlement is not the firm’s first regulatory issue.
The three advisors involved in the unsuitable L Bond recommendations collectively had over 40 years of industry experience, which makes their alleged misconduct particularly troubling. Industry professionals with this level of experience should understand the fundamental principle of suitability in investment recommendations.
Prior to this settlement, the firm had received multiple customer complaints related to unsuitable investment recommendations. FINRA records indicate:
- Four customer disputes involving similar allegations in the past decade
- Two regulatory actions resulting in fines
- A higher-than-average complaint ratio compared to similar-sized firms
According to industry data, approximately 7.3% of financial advisors have at least one misconduct disclosure on their record, but repeat offenders are responsible for a disproportionate share of total misconduct in the industry. A Bloomberg analysis found that advisors with prior offenses are five times more likely to engage in misconduct compared to advisors with clean records.
Regulation Best Interest: What investors need to know
At its core, Regulation Best Interest (Reg BI) is straightforward: your financial advisor must put your interests ahead of their own. Implemented in 2020, this FINRA rule requires broker-dealers and their representatives to recommend only financial products that align with your specific financial situation, needs, and goals.
In plain language, this means:
- Disclosure obligation: Advisors must clearly tell you about all costs, risks, and conflicts of interest
- Care obligation: Recommendations must be appropriate for your specific situation
- Conflict of interest obligation: Firms must establish policies to identify and address conflicts
- Compliance obligation: Firms must actively enforce policies ensuring adherence to these standards
In the case of GWG L Bonds, FINRA determined that American Trust Investment Services failed in its care obligation by recommending high-risk, illiquid investments to conservative investors seeking capital preservation. Moreover, the high commissions associated with L Bonds (reportedly 5-8%) created a conflict of interest that may have influenced the recommendations.
Moving forward: Protection and prevention
The American Trust Investment Services settlement offers valuable lessons for all investors:
Always understand what you’re buying. If an investment seems too complex to explain in simple terms, or promises returns that seem unusually high compared to similar investments, proceed with extreme caution. When advisors claim an investment is “just like a CD” but offers significantly higher returns, that’s a serious red flag.
Diversification remains fundamental. Many L Bond investors had concentrated positions representing substantial portions of their portfolios. Even with supposedly “safe” investments, concentration magnifies risk exponentially.
Check your advisor’s background. FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure website provide free access to regulatory history. A pattern of complaints may indicate deeper problems.
For those affected by L Bond losses, options exist for potential recovery beyond the FINRA restitution. The settlement establishes a foundation for individual claims based on unsuitable recommendations, misrepresentation, or failure to disclose material risks. If you believe you have been a victim of investment fraud or received bad advice from a financial advisor, contact the experienced securities attorneys at Haselkorn and Thibaut at 1-888-784-3315 for a free consultation.
As we’ve seen repeatedly in financial markets, when investment professionals prioritize commissions over clients, everyday investors bear the burden. By staying informed and vigilant, you can better protect yourself from becoming the next cautionary tale.
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