This week various media outlets have reported that Dallas Cowboys running back, Darren McFadden, sued Minnesota-based Ameriprise Financial. McFadden alleges that Ameriprise failed to prevent one of its former representatives from enriching himself by fraudulently obtaining power of attorney to access McFadden’s accounts. Several articles reporting on McFadden’s lawsuit describe Ameriprise and an individual defendant using terms such as “broker,” “investment adviser,” “investment company,” and “financial adviser.” The interchangeable use of these terms reflects and reinforces confusion among consumers of financial services. It is important for consumers to understand the distinctions between these terms—particularly between a “broker” and an “investment adviser” – and the different legal standards applicable to entities and individuals utilizing these titles.
A broker (also referred to as a “broker-dealer”) is a person or entity paid to conduct securities transactions for a client’s account. Brokers are held to a “suitability” standard, meaning they must ensure that the transactions they perform align with the client’s stated goals and tolerance for risk. Investment advisers are persons or entities paid to advise clients on the value of certain securities products, and/or on when to buy or sell securities. Investment advisers are held to a higher, “fiduciary” standard, meaning they must put their clients’ interests before their own. Similarly, persons who represent themselves to be a “financial adviser,” a “financial planner,” “financial counselor,” “investment counselor,” a “financial consultant,” or who utilize other similar designations, titles, or combinations are held to a higher fiduciary standard under Minnesota law.
Broker-dealers and investment advisers generally must register with federal and/or state regulators to lawfully conduct business. Likewise, individuals representing broker-dealers or investment advisers must also register as “agents” and/or “investment adviser representatives” (IARs). Consumers can obtain and view registration records for broker-dealers and agents at FINRA’s Broker Check website (https://brokercheck.finra.org), and records for investment advisers and IARs at the Securities and Exchange Commission’s IAPD website (https://adviserinfo.sec.gov/IAPD/Default.aspx).
Entities or individuals owing a fiduciary duty to their clients breach that duty if they put their own self-interests ahead of their client’s interests. If McFadden’s allegations are true, the Ameriprise representative (who was registered as an agent and an IAR at the time he worked with McFadden) breached his fiduciary duty to McFadden and is liable for damages caused through that breach. Consumers who believe that they have similarly been taken advantage of by someone owing them a fiduciary duty should contact an experienced attorney for assistance.