A registered investment advisor (RIA) is an individual (or broker-dealer) that provides commercial investment advisory services and that is properly registered with either the Securities and Exchange Commission (SEC) or one of equivalent state agencies, such as the Florida Office of Financial Regulation.
Under the state and federal law, RIAs are subject to many different legal requirements. Perhaps most importantly, registered investment advisors owe their clients a fiduciary duty. This is the highest standard of care under U.S. law, and it means that RIAs must always act in the best financial interests of their clients.
Registered Investment Advisors: Fiduciary Duties Explained
It is clear that under securities regulations, including the Investment Advisers Act of 1940, RIAs owe considerable duties to their customers. However, these duties can sometimes seem vague and difficult to understated. It is imperative that all investors understand exactly what obligations their RIAs owe to them under the fiduciary duty standard. Specifically, under the law, RIAs must always:
- Take proactive steps to understand their client’s unique goals, risk tolerance and other financial circumstances;
- Exercise adequate professional skill when managing a client’s assets and recommending trades and transactions;
- Give their client’s account sufficient professional attention;
- Avoid recommending any investments that are unsuitable for the client;
- Avoid putting their own financial or professional interests above their client’s best interests;
- Avoid misrepresenting either directly, or through omission, any material aspect of any investment opportunity; and
- Ensure that their customer is fully informed of the important details and risks regarding any investment.
When Can You Hold Your RIA Liable for Your Losses?
If you lost a considerable amount of money working with a registered investment advisor, your case should always be reviewed by an experienced investor losses attorney. To be clear, you cannot automatically hold an RIA liable for your investment losses. However, you can hold them liable if, in any manner, they committed some type of misconduct that contributed to your losses.
Of course, there are always risks involved in investing. When an RIA acts properly, the investor will bear all of the risks associated with a trade or transaction. For example, if your investment advisor recommended a reasonable mutual fund, and you, with adequate information, authorized the purchase of that fund, you likely not be able to hold the advisor liable if that ending up being a ‘losing’ trade.
On the other hand, if, under similar circumstances, your RIA recommends a mutual fund, but fails to inform you of their personal connection with that fund, then your investment advisor has breached their fiduciary duty. They have failed to disclose relevant information, unlawfully putting their own interests above your best interests. As such, they can, and should, be held financially responsible for any losses that you sustained related to that failed investment.
Do You Need Legal Assistance?
Our investment fraud team can help. If you lost money due to the negligence or misconduct of your registered investment adviser, you deserve fair compensation. To set up a free, no-obligation review of your claim, please contact the Sonn Law Group today at 844-689-5754.