Agents in the business today have many fears. Trying to keep current clients happy, continuously looking for new clients, and the fear of some type of disability rendering them unable to work have all been found to be top concerns with agents in the field.
But the biggest fear of all is the fear of litigation, said Robin Kern, president of the Financial Advisors Legal Association, Las Vegas, in a breakout session at this years National Association of Insurance Financial Advisors annual meeting here.
“You are the number 1 litigious target today,” she said. “It can ruin your reputation, it can ruin your business.”
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Kern explained that claims against financial advisors are increasing at a dramatic rate, while at the same time, legal defense costs are also skyrocketing.
Probably the most frustrating statistic, Kern noted, is the fact that 86% of these claims against financial service professionals are groundless claims. “The majority of claims are groundless, yet you still have to defend yourself,” she said.
The cost for representation can be staggering, usually because in the current highly regulated equity-based products environment, agents need to hire a specialized securities attorney, something that comes at a very high price.
“There are a lot of different specialties with securities law,” Kern noted.
Also, she said that these lawsuits usually come in multiples. “All of a sudden, someone has 5 claims filed against them and they have to come up with $20,000 for legal fees.”
One of the reasons Kern cites for the excessive number of lawsuits is the fact that there are several attorneys marketing their services specifically to clients of financial advisors. These attorneys often advertise themselves in consumer investing magazines like Money, which, according to Kern, is where more than 90% of the investing public looks for information.
Kern said the mainstream public is becoming more aware of the opportunities to sue their financial advisors. She explained that several consumer publications have actually published articles with step-by-step instructions on how to sue your financial advisor.
“A lot of people are also getting their information on the Internet,” she said.