The right financial advice can be critical in managing investments. The wrong financial advice, on the other hand, can lead a client toward disaster. Since finance can be a complex subject, those who provide advice on it are in a position of trust. Where advisors fail to meet the required standard, they can be held legally accountable.
The Role of Financial Advisors and Client Expectations
Financial advisors exist to help their clients deal with their investments. They’ll help to devise plans for the future, and to assess the risks involved. The advice will be tailored to the needs and goals of the client in question. So, if a client is planning to retire in thirty years, an advisor might help them to build a portfolio that will support that goal.
One of the most important jobs of a financial advisor is to manage expectations. If you’re dispensing advice, and you believe that your client has a distorted view of the facts, or that they are on a path toward an unwise decision, then you have an ethical and legal obligation to say something about it.
Financial advisors can help with the management of inheritance, pensions, mortgages and insurance payments. To do this responsibly means keeping an eye on the risks, managing those risks, and avoiding them altogether.
Investment Mismanagement Defined
Investment mismanagement occurs when a person uses the money in an investment portfolio for purposes other than the benefit of the client. This might include outright stealing, or it might be used to perpetrate fraud, or any number of other crimes.
Not all financial advisors are competent. A minority are actively malicious. They’re all human beings, and prone to the occasional lapse in judgement. So, how do we distinguish mere error from actual wrongdoing?
If you have a trust agreement with someone, then you’re giving them the power to manage the money. This involves the signing of a contract. Here is where independent legal advice can be worthwhile. Read the agreement closely and establish how much freedom you are handing over.
The Financial Consequences of Investment Mismanagement
If your investments are not properly managed, then you stand to lose out financially. You may lose the capital you’ve invested, or enjoy less in the way of returns. Your financial goals, in the long term, might be pushed backwards.
Regulatory Oversight & Legal Recourse for Affected Clients
In the UK, the Financial Conduct Authority governs independent financial advisors. To operate, you’ll need to pass exams, and follow the rules established by the FCA. The organisation oversees around fifty thousand firms.
If you’re concerned about the quality of service you’ve received, the first step is to contact the firm directly. Firms are obliged to acknowledge complaints within three days, and make a decision on them within eight weeks. If you don’t like the decision you get, then you can escalate for free via the Financial Ombudsman Service, or seek out a solicitor specialising in professional negligence.
Preventing Investment Mismanagement
So, how can we avoid these problems in the first place? There are a few sensible strategies. Research the firms you work with. Select an advisor you trust, and keep the lines of communication open. Make sure that you clearly articulate your goals, and that you understand the advice you’re being given. If you get a bad vibe from your advisor, it’s usually best to trust your instinct and seek another advisor.
