RIA Allegedly Defames Investment Adviser Through Client Outreach

Case Overview

This case involves a former investment adviser representative (IAR) of the defendant’s company. The defendant’s company and plaintiff had been working together for over 20 years when the plaintiff informed the defendant that a long-term illness had put her in serious financial trouble. She told the defendant she intended to transfer upwards of $100 million in assets from the defendant’s clients to a new platform and charge clients a significantly higher percentage on this new platform. In response to this, the defendant sent letters to clients that had been solicited by the plaintiff informing them of the plaintiff’s plans and advising that it was not in their best interests to move to the new platform. The plaintiff sued the defendant for defamation because of the letters the defendant sent. It is alleged that the defendant’s company had a fiduciary duty to advise its clients as to what was in their best interests. Because the defendant and plaintiff had been working together for so long, the defendant company intended to clarify to its clients that plaintiff was no longer acting on behalf of their company. An expert in fiduciary duty was sought to discuss whether the defendant complied with their fiduciary duty as a registered investment advisor.

Questions to the Banking expert and their responses

What is the fiduciary duty of an RIA, particularly in this case? Please explain.

In a case like this, the RIA's primary fiduciary responsibility and duty of loyalty is to the client. The RIA should always take the steps necessary to avoid any real or perceived conflict of interest and a requirement of this type is most likely contained in the code of conduct for all RIA's which states some of the following language: an investment adviser fiduciary obligations to its investment advisory clients and the fiduciary obligations of the individuals it supervises and require compliance with the federal securities laws...the code of ethics should set out ideals for ethical conduct premised on fundamental principals of openness, integrity, honesty, and trust.

About the expert

This expert has over 30 years of experience in the banking and mortgage industry. He obtained his BA and MBA from Stephen F. Austin State University. He is a certified national bank examiner, federal thrift regulator, and fraud examiner. This expert previously served as the managing director of Profit Partners Inc, a senior resident advisor at KMPG-Barents Group, a senior resident advisor at IBTCI, the managing director of Bankworld Inc., and a partner at Stone Advisors. Currently, he is the president and CEO of an independent financial services consulting firm in Texas that specializes in regulatory banking supervision, risk management, and internal control.

E-009316

Specialties:

Banking