Is it okay for a broker-dealer to use bonuses and other incentives to encourage its financial advisors to steer customers into “in house” and proprietary funds that may not be right for them just to generate more fees for the firm? Or does this practice improperly (and illegally) incentivize the financial advisor to betray his customer’s trust for his and his firm’s benefit – thereby compromising the integrity of the relationship?
The SEC is asking just those types of questions about the practices of JP Morgan, according to recent reports. Per InvestmentNews, the SEC and other regulators have subpoenaed and otherwise inquired of JP Morgan about the firm’s sales practices. Specifically, the reports indicate that the focus seems to be on conflicts of interest related to the sales of mutual funds and other proprietary products to customers. The SEC is reportedly looking into whether JP Morgan breached duties to its customers and/or applicable laws by unfairly and/or illegally marketing its in house investment products.
The sale of in-house proprietary products can be a very lucrative business for large “wire houses” as they are known in the industry. Wire houses include such familiar names as JP Morgan, Merrill Lynch, Citigroup, Wells Fargo, etc. By performing all of the structuring, issuing, lending and selling for their proprietary funds internally, a wire house is able to capture all of the associated fees, commissions and charges. Therefore, it is important that regulators review the sales of such in house products, to make sure they are being sold fairly and legally to customers.
The regulators are allegedly reviewing pensions and other accounts that are covered by a fiduciary standard at JP Morgan. Fiduciary duty means that the financial advisor must look out for their customer’s best interests ahead of their own. There is some debate over whether or not all financial advisors have a fiduciary duty to their customers.
Even so, financial advisors should give unconflicted advice to customers and should be looking out for their customer’s best interests. Fiduciary or not, it is illegal for financial advisors to improperly provide conflicted and misleading investment recommendations to their customers, and for their firm to encourage them to do so.
It is the right of any and all investors who believe they may have suffered losses as a result of recommendations of their financial advisor to contact our offices to explore their legal rights and options. The attorneys at Malecki Law have extensive experience representing investors in cases that result from conflicted advice from a financial advisor.
If you or a family member lost money and believe your financial advisor was looking out for himself or herself instead of you or your loved one, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.