There is an old adage that says, “The grass is always greener on the other side.” Don’t tell that to the thousands of investment advisers who switched from SEC regulation to state regulation.
The Dodd Frank Wall Street Reform and Consumer Protection Act allowed investment advisers with assets under management between $30 million and $100 million to switch to state regulation. Many did thinking they would find things easier with the states. That appears to be not so according to recent statistics.
The SEC has limited resources and therefore can only inspect and review a small percentage of investment advisers each year. The states, however, appear to have really stepped into the void. According to an article published in InvestmentNews there was a whopping one year 27% increase of advisers pulling their applications after compliance issues arose. In addition, the states revoked or denied 736 licenses.
What are the common problems the states are finding? Advisers using unlicensed personnel and suitability failures. Both should be of major concern to the investing public.
Like stockbrokers, investment advisers are required to perform due diligence on whatever products they recommend to their clients. Not only must they research the products they sell, they also must make sure their recommendations are suitable for each client’s specific needs and financial situation. What works for a 90 year old who needs income to live is much different than the needs of a 30 year old that has no immediate cash flow needs.
We have seen numerous instances of stockbrokers and investment advisers that recommend a single product to all or most of their clients. Luckily, the states seem to be stepping up and increasing their review of those advisers who opted out of SEC regulation.
If you have lost money through some sort of securities fraud or unsuitable investment you may have a claim. (These claims are not limited to investment advisers; we have also seen insurance agents and real estate brokers sell what are essentially securities.) Some of the cases we have handled include unsuitable tenant in common investments (Carlton Cabot, DBSI), phony or unsuitable 419 plans (also called business protection plans) and disallowed captive insurance plans.
There are thousands of fraudulent schemes that were sold by brokers who ought to have known better. In addition, there are other investments that may be totally legitimate for one investor but unsuitable for others. If you are not sure if you have a case, call us. The consultation is free. Investment fraud cases are normally handled on a contingent fee basis.
Post by Brian Mahany, Esq.