Many investors are unable to make a complaint when they feel their financial advisor is not upholding their duties. This happens because they do not know how to handle their complaints. However, it is possible to make a complaint and have it handled by a third party. This article will discuss how to make a financial advisor complaint and the various organizations you can contact. Read on to learn more about the three main organizations that you should consider when filing a complaint.
RIAs
The SEC has found RIAs to be a source of complaints about their services. Among the charges: RIAs did not seek the best execution for client transactions, failed to choose share classes that provided more bang for the client’s buck, and failed to implement written compliance policies and procedures. In addition, an RIA’s affiliated broker-dealer received compensation from the firm’s clients.
RIAs typically charge a fee based on the value of the assets under management. This fee varies, but it is typically 1% to 1.5%. The higher the assets of the client, the lower the fee. The fees place the advisor on the same side as the client, and the fee is based on increased assets, not on commissions. However, there are some RIAs that do not offer alternative pricing models. Thus, you may have to shop around to find an RIA with the fee structure you desire.
RIAs can make buy-and-sell decisions without the client’s approval. However, clients are ultimately responsible for decisions and should ensure that they trust their RIA. In addition, the RIA does not have access to its clients’ portfolios. The custodian keeps their clients’ assets secure. According to the Securities and Exchange Commission, the SEC and State securities regulators regulate RIAs.
Despite the complaints about RIAs, demand for financial advisers is increasing and assets managed by RIAs are expected to increase by 12% per year by 2021. Another factor contributing to the RIAs’ popularity is the emergence of Robo-advisors, which are computerized software programs that disseminate investment advice based on the user’s preferences. These new financial advisors are a source of financial advisor complaints, so you should carefully investigate the service provider you are considering before hiring one.
RIAs earn their income through management fees based on a percentage of client assets. As a result, they have a duty of care to their clients. Moreover, RIAs must register with the Securities and Exchange Commission if they manage more than $100 million in client assets. Registration of RIAs under the Investment Advisors Act of 1940 outlines the requirements for registration and the role of investment advisors. This law also requires the registration of small firms, individuals, and businesses that provide financial advisor services.
FINRA
FINRA’s financial adviser complaint investigation process has two parts. First, the regulator will investigate your complaint and take steps to remedy your losses. If that doesn’t work, you may wish to contact an attorney. Secondly, you can choose to resolve your complaint through mediation or arbitration. Either option can be useful. If you’ve already lost money, you should consult an attorney to determine your best course of action.
The FINRA rule states that member firms must report any violations to them within thirty days of becoming aware of them. These laws include securities and investment laws, insurance laws, commodity regulations, and financial rules. Additionally, the rule applies to standards of conduct of any regulatory body, including FINRA. However, if the complaint was filed with the regulator, the investigation may be delayed. Therefore, you should file your complaint as soon as possible.
Once FINRA has received your complaint, the next step is to prepare a response. The investor complaint should detail the circumstances in which the advisor made the investment. If there is a dispute, a formal response to the investor’s complaint will help you prepare your response. You should deny the inaccurate allegations made in the investor complaint and set forth applicable affirmative defenses. FINRA will then proceed to investigate the complaint and take appropriate action.
The FINRA investigation process will determine if your complaint is valid. In most cases, FINRA has jurisdiction over most brokerage firms, their employees and associates. However, if your complaint involves another entity, it may be best to contact the SEC or your state securities regulator. In the case of complaints filed with FINRA, a financial advisor’s attorney will prepare a pre-hearing brief. This brief will describe the facts and laws that control the outcome of the case. It will help focus the arbitration panel’s attention on what matters most to you.
Another option for filing a complaint is arbitration. Arbitration is a good alternative to filing a lawsuit in the court system. It provides you with the opportunity to hold your advisor accountable for the mismanagement of your investments. While many people believe that going to court is the only way to hold a financial advisor responsible, arbitration is a much better option. If you are unhappy with the performance of your financial advisor, FINRA can investigate your complaint and help you get the compensation you deserve.
SEC
The SEC, or the Securities and Exchange Commission, is the government agency that oversees the registration and licensing of securities professionals. The agency also investigates complaints filed against financial advisors. In some cases, the SEC will resolve a complaint by taking action. The commission may decide to take action on the complaint without taking it to court. Fortunately, it doesn’t always take this route, and it’s a good idea to check with an SEC-approved financial advisor before filing a complaint.
The SEC’s recent action against a previously-barred North Carolina investment adviser demonstrates the difficulty of ensuring that your investment funds are safe and sound. The agency charged investment adviser David W. Schamens with deceiving retail investors by soliciting investments in a pooled investment vehicle whose underlying investments would be preselected stocks “auto-traded” by a proprietary algorithm. Unfortunately, Schamens used the money from his investors for personal expenses and repaid redemptions.
In addition to addressing the complaints, the SEC also filed civil actions against two firms in April and their executives. In one case, a real estate broker raised more than $58 million from investors using a fake investment record and fraudulently diverted the remaining funds to himself. A third case involved an entertainment company that raised money through a “boiler-room” sales scheme. This case illustrates the need for financial advisers to be regulated.
While the SEC’s actions are rare, they do take notice of them. For instance, the SEC settled a lawsuit against a New York couple in June 2021, which involved the sale of stock in a pharmaceutical company. The project manager learned of the negative results of a drug trial and tipped off another individual to sell the stock. The individual’s uncle also sold the stock. The stock of the pharmaceutical company fell by 50% shortly after the negative news was announced. If this had happened, the investors would have lost over $100,000.
The SEC also increased its focus on SPACs, or “blank check” companies, as an alternative to a traditional public company. SPAC transactions follow a two-phase process: a fundraising round that raises investor money and a merger with a private target company. Investors in the initial SPAC then either sell their shares on a secondary market or have them redeemed. When the SEC receives a complaint, it will conduct a formal investigation.
