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Betrayed in Business Part 2: Investment Advisors Who Churns and Burns for More Commissions They Earn

Fiduciary Duty

A breach of fiduciary duty occurs when someone entrusted with managing a business's affairs betrays the trust placed in them. This could be an officer, a business partner, or a trusted manager. Learn about the fiduciary duty of financial planners.

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The Jury’s Question:

Did the investment advisor, Don Davis, placed his own interests before the investor, and use the advantage of his position to gain a benefit for himself at the expense of the investor, or placed himself in a position where his self-interest might conflict with his obligations as a fiduciary?

Answer: Yes.

The Case Study

In the first of the fiduciary duty series, we looked at corporate leaders. This installment looks at people who manage money entrusted to them. Investment Advisors are trusted to act diligently, and responsibly, and to place their client’s interests ahead of theirs. Putting someone’s interest first conflicts with a bad investment advisor’s need for quick sales to earn commissions, especially when they are looking for new toys.

Investment advisors owe a fiduciary duty to act in the best interests of their clients. This duty requires them to provide accurate information, maintain transparency, and prioritize the financial well-being of their clients. Sometime, a fiduciary must make a decision that is not in the client’s, but the fiduciary’s, best interest. CNBC recently discussed a case involving an investment advisor who was found liable for misrepresenting investment risks, failing to adequately diversify client portfolios, and engaging in excessive trading to generate higher fees.

The High-Risk Shell Game With Your Savings

The advisor’s misrepresentation of investment risks prevented clients from making informed decisions about their investments. The investment advisor misled clients by downplaying the risks associated with certain investments and overstating potential returns. This false information led clients to invest in high-risk assets that ultimately resulted in significant losses. The investment advisor also failed to properly diversify client portfolios, which is a key component of effective risk management, but concentrated investments in a limited number of assets or sectors, thus exposing clients to unnecessary risk and increased the potential for financial losses. The final insult was the advisor engaged in frequent trading to generate higher fees for
themselves – a practice called “churning” in the industry. If you are the victim of quick-talking Investment Advisor or money manager who is more interested in moving your money for his or her commissions than protecting your savings, speak with one of our business lawyers. Because at the Vethan Law Firm.

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