An In-Depth Look into the Allegations: Its Dire Implications on Investors
The allegations brought against Robert Morgan Vance by the United States Securities and Exchange Commission are indeed severe. This is, in part, due to the fact that the people who trusted Vance with their financial investments were everyday retail investors — many of them at or nearing retirement age with little to no room for economic setbacks.
Accounting to 15l-1(a) under the Securities Exchange Act of 1934, the agencies have alleged that Vance has clearly violated the ‘Regulation Best Interest or Reg BI’. This simply means Vance failed to protect the best interest of his retail customers that he was bound to serve as a financial advisor. It is their allegations that Vance failed to sufficiently assess the financial risks that these L Bonds from GWG Holdings, Inc. posed before recommending them to his clients. Many of these clients had moderate risk tolerance but were advised to invest the astounding sum of approximately $4.3 million into these high-risk, illiquid L Bonds.
The Great Recession of 2008 taught us, “The four most dangerous words in investing are: ‘This time it’s different.'” This quote from Sir John Templeton, a legendary British investor, could not be more relevant to those who suffered financial damage due to Vance’s alleged misconduct. In fact, data suggested that more than 7% of financial advisors have misconduct records, painting a grim picture of the industry.
Digging into the Background of the Financial Advisor and Past Complaints
Robert Vance has quite an extensive history in the securities industry. He entered the industry in 1988 and has previously been associated with numerous firms, including DreamWest Securities Corporation and Moloney Securities Co., Inc. However, what stands out in Vance’s profile is the multitude of complaints lodged against him.
Vance has been the subject of eighteen previous FINRA disclosures, including multiple complaints regarding ‘Suitability/Negligence’, with many investors alleging immense losses due to his advice. Despite these multiple recorded breaches of trust, Vance continued to operate as a financial advisor, arguably taking advantage of his clients’ trust and lack of specialized knowledge in the financial sector.
FINRA Rule and its Layman Explanation
The crux of the violations lies with Vance’s failure to adhere to Rule 15l-1(a) under the Securities Exchange Act of 1934. This rule, often called ‘Regulation Best Interest or Reg BI’, essentially dictates that a broker-dealer is obligated to act in the best interest of its retail customers when recommending securities or strategies involving securities. This rule was designed to ensure the protection of retail investors, preventing financial advisors from taking advantage of their position.
In simpler terms, formation of Reg BI means that all financial advisors like Vance have to prioritize their clients’ financial security above everything else. They are required to understand and disclose all relevant risks and rewards involved with the investments and make recommendations that align with their clients’ investment profiles.
Consequences and Lessons to be Learned
Vance’s actions have had dire financial consequences, especially for his clients who were misled into investing in these high-risk L Bonds, which inevitably lost their value. Current lawsuits seek permanent injunctive relief, disgorgement of ill-gotten gains, and imposition of civil monetary penalties on Vance. Possibility of a prison term can’t be ruled out either, depending on the court’s judgement.
This case serves as a crucial reminder of the importance of due diligence. For retail investors, it underlines the need for vigilance and thorough understanding of the potential risks associated with any investment. It also serves as a sobering lesson for financial advisors on the legal and ethical responsibilities incumbent upon them in their professional conduct.
As Warren Buffet once wisely said, “Risk comes from not knowing what you’re doing”. Therefore it’s imperative to ask the right questions, do comprehensive research, and stay on top of your financial rights and obligations.
