"The RIA business has gotten a big reputational boost in the last year," because of a heightened focus on its fiduciary status, said Andrew Stoltmann, a Chicago-based securities lawyer, who has represented more than 700 investors against brokerage firms.
There are no industrywide figures available for customer complaints against their RIAs. More than one in 10 RIAs report they have been the subject of a disciplinary action, according to a study by the Washington-based Sunlight Foundation, a nonprofit firm that advocates for open government. Such actions may include being convicted of a felony or making false statements to regulators.
Tally Of Trouble
Customers filed 3,208 complaints against their brokers in 2010, according to the Financial Industry Regulatory Authority, the self-funded regulator for the securities industry. Customer complaints for the RIA industry don't go through one centralized entity and may be resolved informally between an investor and a firm, through arbitration, or through court action.
The SEC, which generally investigates possible violations of securities law, took 113 enforcement actions against investment advisors or investment companies in 2010. The commission doesn't track aggregate fines against the industry.
Most investment advisors serve their clients well, said David Tittsworth, executive director of the Washington-based Investment Adviser Association, a lobbying group for SEC-registered advisors.
"I don't think there's a silver bullet, but I think the model of fiduciary duty and disclosure of conflicts of interest is a very good model," he said.
Registered advisors have gained ground with investors, according to Alois Pirker, research director at Aite. Since 2007 independent RIAs have gathered an additional 2 percent of the $13.4 trillion wealth-management market, bringing their share to about 11 percent, while brokers from the largest full-service firms have lost about 3 percent. That shift may be driven in part by traditional brokers fleeing large financial firms whose reputations were damaged by the 2008-2009 financial crisis.
Independent View
Alan Harter, 41, left Morgan Stanley Smith Barney in January to start his own advisory firm in part because his clients expressed concern about potential conflicts of interest at his former employer.
"It's very hard for a large broker-dealer organization to treat 18,000 brokers as fiduciaries," because the range of experience of its brokers may vary widely, said Harter, managing director of McLean, Virginia-based Pactolus Private Wealth Management, which he founded in January and which provides investment-management and financial-planning services to families with $25 million or more in assets. Harter and his firm, which serves 32 families, have no complaints or related events listed with regulators.
Performance Record
Advisers are not required to disclose their performance history to prospective clients, said Ted Laurenson, a New York-based partner at McDermott Will & Emery.