Securities Lawyers Blog

The law offices of Gana Weinstein LLP are following the investigation by the Massachusetts Secretary of the Commonwealth’s office where the Secretary of the Commonwealth opened an investigation into Wells Fargo’s brokerage and advisory sales practices.  Specifically, the state announced that the investigation seeks information related to inappropriate referrals of brokerage customers to managed and advisory accounts, unsuitable recommendations of alternative investments, as well as unsuitable referrals and recommendations in connection with 401(k) rollovers.

These three areas have been incredibly problematic in the securities industry in recent years.  First, brokerage firms have been accused of referring clients from brokerage accounts into advisory accounts even though the client does not need the advisory account.  The issue is that the fee structure in the advisory account is much greater and the client receives no additional investment service that the customer needs for the increased cost.  The second issue concerns complex securities products often referred to as alternative investments.  These investments can be problematic because they advisors are often paid high commissions in order to sell alternative investments that are rarely appropriate for investors.  Finally, in recent years there have been issues with advisors recommending a 401(k) rollover into a brokerage account.  The issue is that most 401(k) plans are very cost effective for investors and keep fees very low.  By contrast, brokers want to amass client’s 401(k) assets where the firm and broker can charge much higher fees for services that the client does not need.  Many times the client would have been better off not transferring their accounts to an advisor due to the higher cost and the potential for unsuitable investment advice.

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