There has been a substantial increase in the number of financial advisers foregoing registration with FINRA as a registered representative in favor of becoming an investment adviser – an RIA. Depending on the structure of the firm and the size of the assets under management, these RIAs are either regulated by the Securities and Exchange Commission or by state regulatory agencies, but not by FINRA.
Aside from a different regulatory regime, RIAs owe unique duties to their clients beyond that of a FINRA registered representative. If you are working with an RIA, it is important to know the duties that are owed to you and your rights should your adviser violate them.
First and foremost, unlike a registered representative, an RIA has an ongoing Fiduciary Duty to clients. “An investment adviser’s fiduciary duty under the Advisers Act comprises a Duty of Care and a Duty of Loyalty.”
The Duty of Care includes, among other things, to
- Provide advice that is always in the best interest of the client;, even if the advice is to “hold” a security and not sell it;
- Seek best execution of a client’s transactions where the adviser has the responsibility to select broker-dealers to execute client trades; and
- Provide advice and monitoring over the course of the relationship.
The ongoing Duty of Loyalty requires that an adviser not subordinate its clients’ interests to its own. In other words, an investment adviser must not place its own financial interests ahead of its client’s interests. To meet their ongoing Duty of Loyalty, advisers must make full and fair disclosure to clients of all material facts relating to the advisory relationship. After all, unlike most brokers, investment advisers are granted discretionary trading authority to make all investment decisions for clients.
These duties play a large role in the standards by which courts and arbitrators hold the RIA in cases of alleged wrongdoing.
If you’ve suffered financial losses as a result of RIA misconduct and believe you are entitled to be compensated for your loss, contact the attorneys at Kaufmann Gildin & Robbins LPP for a complimentary consultation.
 See, Investment Advisers Act Release 2106, supra footnote 15.