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How to Avoid Lawsuits if You Are a Financial Advisor

There are a lot of legal safeguards which financial advisors need to take in order to ensure they protect themselves when it comes to providing financial advice to their clients.

There are a few basics which all financial advisors must follow, such as avoiding any sort of unauthorized trading, not indulging in the forging of any documents, refraining from providing any false as well as misleading information, preserving the confidentiality of their clients, and of course, not stealing any of the money which their clients entrust them to handle.

There are a few basics which all financial advisors must follow, such as avoiding any sort of unauthorized trading or not indulging in the forging of any documents

However, there are some legal requirements which are not as obvious, and many financial advisors fall in legal disputes because of mere ignorance of such legal requirements. In 2017 alone, FINRA received a total of 3000 complaints from investors, who reported their financial advisors for misconduct.

Around 1369 disciplinary action requests were also received by the organization, and in response to all of these complaints FINRA has fined around $64.9 million to various financial advisors. In addition to these fines, 500 individuals came very close to being barred from practicing financial advisory, while 733 received suspension.

To avoid falling into any of the legal pitfalls which these financial advisors unfortunately did, all you need to do is to make sure you stay up to date with current laws and regulations. Some of the most important yet less obvious ones are described below.

Get All The Information You Can

Investment advisors are entrusted with protecting the best interests of their clients, and to do so it is necessary that you get all the relevant information which would allow you to fulfill your fiduciary duties.

To ensure your client provides you a complete picture of their financial picture, the best practice is to conduct as many interviews, surveys, questionnaires, as well as receive all the required documentation such as tax returns and the bank statements of the client.

it is necessary that you get all the relevant information which would allow you to fulfill your fiduciary duties

Some clients may not feel completely comfortable to give you a complete picture of their financial standing due to various reasons, however it is important that you get access to it. In order to encourage your clients to share all of their information, the best thing to do is to inform your clients that having incomplete information will harm your client’s interests as the advice you give them as well as the decisions you make on their behalf may be inaccurate, resulting in significant losses for your clients. That way, you can be sure to receive as much information from your client as is necessary for you to do your job correctly.

The Most Accurate and Professional Manner

It is not only necessary for your clients to provide complete information to you, but also your responsibility to provide complete disclosures to your clients regarding their financial position and also the kind of returns they should expect from the investments which are recommended by you.

That way you can be sure that both your client and yourself are on the same page about his investment portfolio. Making full disclosures is also a requirement of the law as stipulated by the state as well as the federal government.

To ensure you are providing complete information, here are a few tips. Not only are you supposed to tell your client where and when investments are being made, but also disclose the future results which are to be expected because of such investments.

Also, information about any conflicts of interest which existed in the past or may exist in the future also need to be disclosed to your client so that he or she may make a fully informed decision about whether to proceed with a particular investment recommended by you. It is a good practice to also share your disciplinary record with the client, no matter how tainted it may be with regard to any legal disputes you may have had with past clients.

Protect Your Client’s Information

Of course there are certain checks which you need to put in place in order to ensure the data provided by your clients is protected from theft. Since cyber-crime is becoming increasingly common with each passing day, it is your responsibility to protect the data provided by your client from any potential cyber-attacks, at least to the best of your abilities.


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