RIA firm in consultation.

Individuals employed in the financial industry understand that there are substantial regulations in the course of business. Government agencies have immense power to scrutinize businesses and may enforce harsh penalties for even the most minor transgressions. Penalties and enforcement actions can cripple a financial business. When this happens, RIAs do not have to work through this complex and complicated process alone. The regulatory defense attorneys at Altitude Securities offer legal counsel to businesses involved in RIA litigation. Call (405) 534-4914 to learn more and schedule your consultation. 

Common RIA Litigation Cases

Registered Investment Advisers (RIAs) can face various litigation cases, often centered around allegations of misconduct, negligence, or violations of securities laws. Some common claims in RIA litigation cases include:

  • Breach of Fiduciary Duty: This is one of the most prevalent types of RIA litigation. Clients may allege that their adviser failed to act in their best interests, engaged in self-dealing, or made investment decisions that were not suitable for the client’s financial situation.
  • Misrepresentation or Omission of Material Information: Clients may claim that their RIA provided false or misleading information about investment products, risks, or performance, or failed to disclose critical information related to investments.
  • Unauthorized Trading: Cases may arise when an RIA makes trades without the client’s approval, leading to disputes over control and decision-making authority.
  • Failure to Supervise: Regulatory bodies may bring cases against RIAs for failing to adequately supervise their employees, which can result in fraudulent activities within the firm.
  • Failure to Diversify: Clients may allege that their adviser did not properly diversify their investment portfolio, leading to significant losses.
  • Failure to Disclose Conflicts of Interest: RIAs are required to disclose any conflicts of interest, such as receiving compensation from third parties, which may influence their investment recommendations. Failure to do so can result in legal action.
  • Securities Fraud: Cases involving fraudulent activities, such as Ponzi schemes or insider trading, can lead to both civil and criminal litigation against RIAs and their employees.
  • Elder Financial Abuse: Advisers may be sued for taking advantage of elderly clients through unauthorized transactions, fraudulent schemes, or other forms of exploitation.

It’s important to note that not all RIAs are involved in litigation, and many maintain high ethical standards while serving their clients. However, these common types of cases highlight the potential legal risks and responsibilities that RIAs must be aware of and take steps to mitigate through proper compliance and risk management.

How Can RIAs Protect Themselves Against Litigation? 

RIAs can take several proactive steps to protect themselves against litigation and reduce their legal risks, including the following: 

  • Compliance with Regulations: Stay well-informed about the latest regulatory requirements from the SEC or relevant state authorities. Maintain strict compliance with all rules and regulations governing your industry.
  • Clear Disclosure: Be transparent with clients about fees, conflicts of interest, investment strategies, and potential risks associated with their investments. Provide clients with all necessary disclosure documents, including Form ADV.
  • Know Your Clients: Conduct thorough due diligence on clients to ensure that investment recommendations align with their financial goals, risk tolerance, and suitability. Document these assessments and keep records.
  • Regular Communication: Maintain open and regular communication with clients. Keep them informed about their investments’ performance and any changes in their financial situation or goals.
  • Diversification and Suitability: Ensure that investment portfolios are diversified and align with clients’ investment objectives and risk tolerance. Document the rationale for investment decisions.
  • Comprehensive Documentation: Maintain detailed records of all client interactions, investment recommendations, account statements, and client agreements. This documentation can serve as valuable evidence in case of disputes.
  • Risk Assessment and Management: Continuously assess and manage the risks associated with your advisory practice. Implement risk management procedures and internal controls to minimize errors and misconduct.
  • Professional Liability Insurance: Consider obtaining professional liability insurance (errors and omissions insurance) to provide financial protection in case of litigation. Make sure to understand the policy’s coverage and limits.
  • Employee Training: Educate your RIA staff on compliance and ethical standards. Ensure that they understand the importance of following regulations and maintaining high ethical standards in client interactions.
  • Client Agreements: Draft clear and comprehensive client agreements that outline the scope of services, fees, and dispute resolution processes. Ensure that clients have a clear understanding of the terms.
  • Conflict of Interest Policies: Develop and adhere to robust conflict of interest policies. Mitigate conflicts by disclosing them to clients and taking measures to manage them transparently.
  • Legal Counsel: Consult with legal counsel experienced in securities law. They can provide guidance and help you navigate any legal issues that arise.
  • Cybersecurity: Invest in robust cybersecurity measures to protect client data and sensitive information. Data breaches can lead to legal liabilities.
  • Continuing Education: Stay up-to-date with industry trends, best practices, and changes in regulations through ongoing education and professional development.

By implementing these strategies and maintaining a strong commitment to ethical conduct and compliance, RIAs can minimize their exposure to litigation and safeguard their reputation within the financial industry.

Speak With an RIA Litigation Attorney Today

If you’re an RIA concerned about potential litigation or seeking expert guidance to enhance your legal risk management strategies, it’s advisable to speak with an experienced RIA litigation attorney today. Legal professionals with expertise in securities law and RIA regulations can provide invaluable insights, assist with compliance, and offer solutions to address any legal challenges that may arise. By proactively engaging with an attorney, you can protect your advisory practice, mitigate potential risks, and maintain the trust and confidence of your clients in an ever-evolving financial landscape. Don’t hesitate to reach out and secure the legal counsel you need to safeguard your RIA business. If your RIA firm is facing a legal dispute, you may wish to enlist the assistance of an experienced regulatory defense attorney with Altitude Securities Law Office. For more information or to schedule your confidential consultation, call (405) 534-4914.