Smart Business Magazine, June 2018

78 Smart Business Cleveland June 2018 INSIGHTS LEGAL AFFAIRS Whats in a name Understand a brokers goal before investing with one Though most investors believe brokers put investors interests above all else thats not always true There isnt a single statute that makes a broker a fiduciary says Hugh Berkson a principal at McCarthy Lebit Crystal Liffman Co LPA Investors dont understand that and are surprised to find that when something goes wrong thanks to bad or conflicted investment advice brokers will claim that they are just a salesperson Smart Business spoke with Berkson about the signs that suggest investment brokers are working more for themselves than they are for their clients What is it that investors dont understand about their brokers No single statute requires brokers to disclose a conflict of interest so brokers may put their own or their firms interests ahead of their clients interests Investment advisers on the other hand operate under a statute that establishes them as fiduciaries They therefore maintain an unquestioned legal obligation to act in their clients best interests Investors might not be able to tell a broker apart from an investment adviser by title alone Many brokers try to blur the distinction by using titles like financial adviser but those titles are of no legal import A savvy investor will ask Are you a broker or a registered investment adviser Investors can check any brokers background to see whether other investors or regulators have found fault with their conduct through BrokerCheck BrokerCheck reports are maintained by the Financial Industry Regulatory Authority FINRA the regulator that oversees the brokerage industry and are available for free through FINRAs website Why should investors monitor their investments Brokers make investment recommendations to clients and typically dont believe they have an obligation to monitor their clients accounts Brokers who get paid a management fee usually a percentage of assets under management are supposed to keep an eye on the account but brokers who are paid a straight commission on each transaction likely wont That leaves it up to the client to monitor his or her investments Brokers can and do hide misconduct but often there are signs that something is off For example something is likely wrong if investors see transactions they didnt explicitly authorize a surprisingly high number of transactions a concentration of their portfolio in a particular investment or category of investments or results that contradict what the broker told them to expect Brokers cross a legal line when they make a trade without a clients permission ask to borrow money from a client or suggest the client should invest with the broker outside of the firm a cant miss real estate deal on the side for instance What should investors do if theyre suspicious of their brokers actions Investors can start by talking with a branch manager to try to get the issue resolved though its not certain that the manager will reach a solution the investor finds adequate When thats the case investors would do well to seek legal counsel to determine what if anything should be done Most attorneys will offer a free consultation to listen to investors complaints and give them a sense of whether its something that should be pursued FINRA maintains a dispute resolution forum arbitration to resolve disputes between investors and their brokers While investors are free to represent themselves in arbitration they will be at a significant disadvantage when faced with experienced counsel on the other side Investors can level the playing field by hiring an attorney who understands both the law underlying investor claims as well as the unique nature of a FINRA arbitration For investors with particularly small claims less than 5000 there are law school securities clinics that offer to help investors reach a resolution The vast majority of brokers want to do the right thing by their clients and try to add value to the process Very few brokers violate the industrys rules and standards In the unfortunate circumstance that a bad broker violated the rules and caused losses investors would do well to get help to try to recover their damages HUGH BERKSON Principal McCarthy Lebit Crystal Liffman Co LPA 216 696 1422 hdb@ mccarthylebit com Insights Legal Affairs is brought to you by McCarthy Lebit Crystal Liffman WEBSITE Learn more about Hugh Berkson and the work hes done as a securities fraud attorney at mccarthylebit com people hugh berkson INTERVIEWED BY ADAM BURROUGHS