Incredibly investment advisers might not be breaking federal securities laws when they receive kickbacks from companies whose investments they recommend to their clients. That conduct is certainly a breach of fiduciary duty, however. This very behavior landed San Diego investment advisory firm Total Wealth Management in hot water. Last week the SEC filed charges against the firm.
According to the SEC’s complaint, Total Wealth Management placed 75% of its clients into a portfolio of funds known as Altus Funds. What they allegedly didn’t tell their clients, however, is that they were receiving a kickback from those funds. That means the investment advisor profited on both sides of the transaction while their clients were clueless as to the arrangement.
Potentially worse, the SEC says the funds were quite risky. That is fine if the clients were knowledgeable about the risks, however we find it hard to believe that such a high percentage of their clients were seeking risky investments.
This isn’t the first time the company has been in trouble. In 2011, a nonprofit charity sued Total Investment Management for securities fraud and other charges. That case was recently settled, although the terms of the settlement are sealed.
According to InvestmentNews, Total’s CEO, Jacob Cooper, resigned from a broker dealer firm in 2005 after allegedly forging client signatures.
Total Wealth Management is innocent of the charges until otherwise proven in court. At this point, the charges are mere allegations. The story concerns us, however, since there appears to be at least one other recent claim against the firm; a claim that was resolved privately and confidentially.
What does this mean for investors? Plenty.
Although stockbrokers and investment advisers owe differing standards of care to their clients, undisclosed kickbacks are never a good idea. We have seen many cases in which investment advisers, stockbrokers and even accountants take kickbacks or undisclosed commissions.
As to accountants, we know several that took kickbacks for touting welfare benefit or so-called 419 and 412 plans. Once again, the unsuspecting client thinks he or she is paying for quality tax planning advice and has no idea that the accountant gets a commission from the investments he recommends.
Common sense suggests that whenever a financial professional agrees to an undisclosed kickback, the temptation for a quick buck often overshadows doing what is best for the customer.
There is some good news for investors, however. Financial professionals become responsible for client losses if they breach a duty or standard of care to their clients. Even if the stockbroker or advisor doesn’t have much money, his or her firm may be held accountable for any losses.
If you think you your stockbroker or adviser has acted improperly, consult with an experienced fraud recovery lawyer and see if they can help you get back your hard earned money. Most investment fraud cases are handled on a contingent fee basis meaning no legal fees unless the lawyer recovers your money.
Mahany & Ertl – America’s Fraud Lawyers