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You may have lost money in your investment portfolio,
due to mismanagement and not even know it.

When does bad investment advice become a fiduciary breach?

Although investing in the market may not come with guaranteed results, not every undesirable outcome can be chalked up to market forces. Sometimes, bad investment advice might be to blame, possibly implicating a breach of a broker's fiduciary duty. A recent disciplinary action by the Financial Industry Regulatory Authority Inc. provides context.

According to the allegations, a Florida-based broker recommended to two of his customers that they exchange certain non-qualified variable annuities. However, FINRA investigated and ultimately determined that the broker lacked a reasonable basis for the advice.

Specifically, the customers had to suffer $82,523.23 in surrender charges for the transactions. On top of that, the customers incurred tax liabilities because the broker failed to utilize a tax-free exchange provision of the Internal Revenue Code. Only the broker came out on top from the transactions, receiving around $60,000 in commissions.

After reaching its decision, FINRA issued a disciplinary complaint against the broker and ordered him to make full restitution to his customers.

As a law firm that focuses on securities litigation and arbitration, we know that investors rely on their brokers for making informed investment decisions. After all, brokers study the market and ways to earn reasonable returns for their careers. Yet not every client has the same goals.

In order to fulfill his or her fiduciary duty, a broker must understand each client’s goals. High risk often accompanies the prospect of high returns, and some clients may prefer more modest returns with minimal risk. If a broker breached that duty, our law firm can seek compensation for you. Typically, that process begins with an investor fraud claim before a FINRA arbitration panel.

Source: Investment News, “Finra issues complaint against broker for unsuitable variable annuity sales,” April 26, 2017

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