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Suitability Is For Suckers!

By Burg Simpson

November 21, 2013   Colorado Blog, Colorado Business / Commercial Litigation

KNOW YOUR RIGHTS AND KNOW WHAT DUTIES YOUR FINANCIAL ADVISORS OWE BEFORE YOU DECIDE TO INVEST – DON’T WAIT UNTIL IT IS TOO LATE!

One of the biggest mistakes investors make is not knowing what duties their financial advisors owe them, and what duties they don’t. Many investors assume that the broker or advisor they are dealing with is acting and giving advice in the investor’s own best interest, and that the law requires this.

It’s not surprising that investors have these assumptions. Other professionals such as Lawyers and Doctors are always assumed to be acting in the best interest of their clients and patients, and the law typically supports that duty. Why wouldn’t other professionals, such as brokers and investment advisors owe the same duties?

Well, often times they don’t. Investors who lose money relying on bad financial advice are often surprised to learn – unfortunately after-the-fact – that most brokers and many financial advisors are acting in their own best interest — not the investor’s interest – and that the law typically protects the broker/advisors from liability through a legal construct known as ‘suitability’.

THE ‘SUITABILITY STANDARD’ PROVIDES ONLY A LIMITED SET OF PROTECTIONS TO THE INVESTOR

Broker dealers, insurance representatives and other financial company representatives typically operate under the “Suitability Standard”. Suitability requires only that the advisor:

(a) know the client and their financial situation; and

(b) recommend products that are suitable for their situation.

In other words, a broker with only duties of suitability, does not have a duty to ensure your best interest and to advise you what is truly the best investment approach for you. Advisors subject only to the ‘suitabilty’ standard will typically argue (if things ever go wrong) that they are only required to make investment recommendations that are in the ‘ballpark’ of what investors in like situations invest in.

The problem is that the world of investments is a pretty darn big ‘ballpark’. And most investors assume that what they are being advised by the broker is right for them actually is in their best interest. Many times, it is not. And then, unless the investment advice is deemed ‘unsuitable’ your ability to hold the broker/dealer or advisor accountable is extremely limited.

FIDUCIARY DUTIES PROVIDE THE INVESTOR WITH MUCH GREATER PROTECTION THAN MERE ‘SUITABILITY’.

What you want as an investor is someone who owes duties to you under the “Fiduciary Standard”. The Fiduciary Standard sets a much higher standard for the financial advisor to meet, and requires the advisor to:

(a) put the client’s best interest first – above the advisor’s own interests;

(b) act with prudence and due care – with the skill, diligence and good judgment of a professional;

(c) not mislead clients and to provide full and fair disclosure of all important facts;

(d) disclose all conflicts of interest;

And (e) fully disclose and fairly manage (in the client’s favor) unavoidable conflicts.

As you can see, the Fiduciary Standard provides an investor with far more protection than Suitability.

HOW DO YOU KNOW WHAT DUTIES YOUR ADVISOR OWES YOU?

Reputable broker dealer and financial advisors are up front about what duties they are, and are not, agreeing to when giving you investment advice. If you don’t know, the best answer – always – is to ASK. Don’t just assume. Ask your advisor whether he or she owes you fiduciary duties to only advise you about investments that are in your best interest. If so, ask whether they will confirm that in writing. If they won’t, that should tell you all you need to know about the true value of their advice.

Frontline recently ran an excellent segment on PBS—“The Retirement Gamble”—that addresses this, as well as many other important investor issues. This video is a must-see investigation into the world investor’s face today when deciding to invest.

Watch the video here: http://www.pbs.org/wgbh/pages/frontline/retirement-gamble

BURG SIMPSON HAS SUCCESSFULLY RECOVERED MILLIONS OF DOLLARS FROM BROKER/DEALERS AND INVESTMENT ADVISORS WHO HAVE WRONGFULLY ADVISED THEIR CLIENTS TO INVEST IN OR TO ENGAGE IN INVESTMENT STRATEGIES THAT WERE SIMPLY NOT RIGHT FOR THEM. IF YOU HAVE LOSSES THAT YOU BELIEVE WERE THE RESULT OF WRONGFUL ACTIONS BY A BROKER/DEALER OR INVESTMENT ADVISOR, PLEASE CONTACT DAVID TESELLE AT BURG SIMPSON ELDREDGE HERSH & JARDINE, P.C., 303-792-5595, dteselle@burgsimpson.com FOR A FREE CONSULTATION AND EVALUATION OF YOUR CASE.

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