(Bloomberg News) Arnold and Cheryl Levy were a year away from retiring when Jeffrey Liskov, acting as their registered investment advisor, took a large position during July 2009 in a speculative fund with Arnold's retirement money.

The Levys were dealing with an ill family member at the time and the trade escaped their notice until December of that year when Liskov alerted them to losses on the fund, the Levys said in a telephone interview. According to court filings they lost about $85,000 on the ProShares UltraShort MSCI Emerging Markets exchange-traded fund, which placed bets that foreign stocks would drop.

"We were just beside ourselves," said Cheryl, 67. She and Arnold, 69, of Stoughton, Massachusetts, felt they could trust Liskov's judgment, she said. Actually, Liskov was sliding toward bankruptcy, and they had to absorb a 44 percent loss on the fund.

Registered investment advisors -- firms that employ about 280,000 individual representatives nationwide -- are billed as an alternative to traditional brokers because they are legally bound to a fiduciary duty to put their clients' interests first, and typically charge fees instead of commissions. Brokers, who number about 632,000, are held to a suitability standard that their advice meet clients' needs at the time a product is sold.

In practice, the lightly regulated RIA industry -- where low barriers to entry helped swell membership by 39 percent in six years -- may offer few protections for investors who wind up with incompetent advisors.

No Guarantee

Registering as an RIA "is just notifying regulators that you are holding yourself out as a professional investment advisor, and that doesn't necessarily mean that you're good, or ethical, or competent," said Sheryl Garrett, founder of Shawnee Mission, Kansas-based Garrett Planning Network Inc., a network of fee-only financial planners.

Inappropriate investments, high fees and an inability to collect on legal awards are some of the problems investors may face with registered investment advisors, according to attorneys such as Angela Magary, a Boston-based securities lawyer, who have represented clients in arbitration or court actions against their advisors.

There are more than 14,000 independent RIA firms, which typically manage investments for individuals and may also provide related financial-planning services, controlling about $1.5 trillion of assets, according to Aite Group, the Boston-based research firm.

Attracting Attention

The industry gained new attention in January, when the U.S. Securities and Exchange Commission recommended that traditional brokers should be held to the same fiduciary standard that applies to RIAs.