Client Questions Broker Good Protection Registered Investment Adviser (RIA) Better Protection National Trust Department Best Protection
Is my account a Fiduciary Relationship? No. Not required to act solely in the client's best interest. Is required to make “suitable“ recommendations. Not required to highlight conflicts of interest. Implied to be a Fiduciary from court case (SEC vs. Capital Gains Research Bureau, Inc. 375 U.S. 180 (1963)) Is a Per-se Fiduciary although the word Fiduciary does not appear in the Investment Advisers Act of 1940, or any of its revisions. Yes. Is a Fiduciary & regulated as a Fiduciary, must act solely in the beneficiaries' best interest.3 “Corporate Fiduciaries have long been held to the highest standard of care by the court systems.“
Is it common practice for clients to sign away their legal right to sue and appeal? Yes. Arbitration agreement is normally a part of the account opening document. Most (RIA's) do not restrict your rights. Check with your RIA. RIA's in Florida have been successful in requiring arbitration, including children who did not sign arbitration agreement. No. Client has full legal rights to sue & appeal.
Does my multiple million dollar account survive firm bankruptcy? No. SIPC protects only $500,000, from bankruptcy. Firm may purchase additional insurance to protect the rest of your account No. SIPC protects only $500,000 from bankruptcy. Firm may purchase additional insurance. The SEC is considering auditing changes for RIA's due to Madoff fraud. Yes. Your account survives bank failure regardless of the dollar value.
To help avoid bankruptcy how much errors/omission, computer, and theft insurance does the firm carry. Wide range of insurance amounts, check with your firm. Normally smaller amounts than major brokerage firms and trust departments for E/O, computer, and theft insurance. To learn more about your RIA go to SEC site. $100,000,000 to $300,000,000 of insurance for each area: E/O, computer and theft. Typical insurance for national trust departments range from 300 to 900 million dollars.
Is the firm allowed to loan out your securities or use them as collateral? If so, firms' creditors could have a lien or claim on your assets. Yes. If margin account, and some times if you have check writing ability you sign a hypothecation agreement allowing your assets to be loaned or pledged. No. Lien/claim is not possible from firm creditors. Assets are separate from firm assets. No. Lien/claim is not possible from firm creditors. Assets are separated from firms assets.