How to Tell if Your Financial Advisor Has a Conflict of Interest Regarding Securities or Funds He/She is Promoting
Get Your Free Consultation
As reported in InvestmentNews, three Raymond James entities have agreed to pay over $15 million to resolve an investigation by the SEC. The settlement and SEC order focused on Raymond James’s actions in improperly charging certain clients advisory fees when the...read more
Conflicts of interest in the field of financial advising are a serious problem. If a broker or financial advisor is more interested in what they get out of an investment than what you get, they could be unable to provide you with fair, reasonable advice. If a financial advisor or broker takes advantage of you by failing to disclose a conflict of interest, they could be breaching the duties they owe you or even committing fraud. For help if you’ve been taken advantage of by a financial advisor, call our FINRA arbitration attorneys at Epperson & Greenidge, LLP today.
What is a Conflict of Interest?
The phrase “conflict of interest” sparks outrage as an instant accusation that the person with the conflict is committing serious ethical infractions. In most cases, there is some conflict of interest your broker or advisor may face. However, the important factor is that they must disclose certain conflicts, and they cannot allow these conflicts to interfere with the quality of their services.
Every financial advisor you work with needs to get paid, which often results in some conflict of interest. The conflict between time and money, even, can affect the services your broker provides. If your broker is paid hourly for their work, they have an incentive to spend more time on your account; if they are paid a flat rate, they have an incentive to spend as little time on it as they can, so they can work multiple accounts. Similarly, if they are paid by a percentage of the money they manage, they want to manage more and more money, and if they are paid by transaction, they want to build as many transactions as they can.
In most cases, these conflicts do not harm clients. Brokers are allowed to make money off of their work, but it is vital that they disclose how they make money. When you start working with a financial advisor, they should disclose how they are paid, where the money comes from, what rate they get paid, and how the pay will affect your investments. Failing to disclose certain information about this may constitute fraud, or could mean the broker taking advantage of you.
If your advisor or broker has other pay incentives, they may stray into illegal conflicts of interest. For example, it may be impossible to fairly represent two clients with competing interests, where the investments made for one client might hurt the investments of another client. Similarly, if the broker manages transactions for a company they are asking you to invest in, this could have unfair benefits for the broker that they are hiding from you.
How to Handle Conflict of Interest Problems as an Investor
When you invest, it is important to look for signs of conflicts. If your broker or advisor cannot give you advice without bringing their interests into the case, they may be committing serious errors. Recognizing problems early and working to protect yourself is important.
Sometimes you can recognize conflicts by closely monitoring your investments. For instance, if your broker is paid per transaction, you may notice them trying to push more and more transactions on you. In some cases, this becomes “trade churning,” or could even mean the broker pushes unauthorized trades to increase the number of transactions you pay for. If you see the number of trades or the cost you are paying go up without your involvement, you may be the victim of these kinds of unethical practices.
You may also identify conflicts of interest based on disclosures. Some documents your advisor gives you might disclose conflicts – but the way they are presented may not make the conflict clear. You could receive dozens of pages of materials, and reading them all may not be your priority. However, you can discover conflicts you weren’t aware of by simply paging through these disclosure documents.
In some cases, you may simply be able to ask your advisor. Your advisor is legally obligated to disclose any conflicts of interests, so ask them what they are. Alternatively, ask them how they disclose their conflicts, then check for yourself. If they say they don’t have any conflicts, that’s probably a lie – and a red flag. You may also be able to look into local or state disciplinary or ethics complaints to see if there were prior problems involving this advisor.
Lawyer for Conflict of Interest Victims
If you or a loved one was taken advantage of by a broker or financial advisor who hid conflicts of interest, talk to an attorney today. The FINRA claim lawyers at Epperson & Greenidge represent victims of financial negligence and unethical brokerage. For a free consultation on your case, contact our law offices today at (877) 445-9261.