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How conflicts of interest can negatively affect investors

On Behalf of | Jun 21, 2024 | Uncategorized

Investing is a way to turn resources into income. Buying stock or investing in a local business could lead to future dividends if the company is successful. The party that acquired stock can also sell it at a profit in the future in some cases.

The average person cannot fully track the stock market or validate local investment opportunities. They rely on a financial advisor or investment professional to assist them with resource management. Some financial professionals may fail to disclose a conflict of interest when working with clients. They could end up giving their clients advice that negatively affects the value of their portfolios, and then they could be liable for the consequences of their misconduct.

Investment professionals have a fiduciary duty

Investment professionals are subject to one of the highest standards of professional obligation. They have a fiduciary duty to their clients to act in their best interests. That duty often involves making intentional disclosures about elements that could compromise someone’s impartial guidance.

Conflicts of interest are important for financial advisors to relate to others. Recommending that people invest in a company that their sibling started might involve putting the benefit of their sibling ahead of the needs of their clients. Pushing people to invest in a company that employs a professional’s family members could also be a conflict of interest.

Instead of looking for the best investment recommendations to provide for a client, the professional instead prioritizes the benefit or desires of an outside party. The failure to inform clients about a serious conflict of interests could lead to compromised investment choices.

Frustrated clients have rights

Taking a major loss on an investment, only to learn that it was not a smart investment, can be a very frustrating experience. Thankfully, people do not always need to just accept the loss of their resources. They may have the option of taking legal action.

Proof of a conflict of interest could justify taking legal action against a financial professional or their employer. A lawsuit could potentially lead to reimbursement for lost investment revenue in some cases. If the courts agree that a professional breached their fiduciary duty and let a conflict of interest affect the services they provided, they may be culpable for the consequences of their choices.

Clients who recognize that major financial failures can be an indicator of corruption rather than incompetence might choose to take legal action in response to an investment professional’s misconduct. Learning more about fiduciary duty and the obligations of financial professionals could be beneficial for those who have lost investment capital after receiving questionable advice.