by Linda Laderman
Legal News
Not even a decade has passed since the U.S. economy experienced a recession that created financial havoc for millions of Americans. But despite the 2008 economic downturn, a recent Gallup poll showed that more than 50 percent of the U.S. population is still invested in this country’s stock markets.
Even though, according to another report this past March from National Public Radio, that figure reflects a downward trend among market investors overall, two Detroit attorneys found the percentages significant enough to dedicate much of their practice to an area of law that concentrates on finding an avenue for investors, who have suffered economic losses as a result of poor financial advice, to seek compensation.
David Shea, managing partner at Shea and Aiello, and his partner, Frank Aiello, said they decided to dedicate 50 percent of their practice to the rules put forth by the Financial Industry Regulatory Authority (FINRA) when they began to see more clients who were affected by harmful financial advice.
Both Shea and Aiello earned their law degrees from Michigan law schools. Shea from Detroit Mercy Law and Aiello from Wayne State University.
According to FINRA, the association is a “non-profit non-governmental organization authorized by Congress to protect America’s investors by making sure the broker-dealer industry operates fairly and honestly.” In addition, FINRA conducts arbitration for securities investors who have been damaged by investments that were unduly risky.
“Clients come to us feeling betrayed, not just injured. It is gratifying to educate them as to why they suffered investment losses, and to recover what for many is a substantial amount or all of their life's savings,” Shea said.
Aiello noted that recent government actions that support regulatory rollbacks have made it increasingly important to provide individual investors with an ability to protect themselves.
“With collapsing regulatory environment from the SEC and self-regulatory organizations, it becomes all that more important to give investors a venue to seek compensation,” Aiello said.
Shea said he found that most FINRA clients are single investors who have trusted stockbrokers and other financial advisers to their detriment.
“We have seen a major escalation in the number of filed complaints due to the Department of Labor pulling back fiduciary regulations. As a result, there has been a noticeable increase in the number of cases that are being filed,” Shea said.
As far as Aiello is concerned, one of biggest issues facing Michigan clients who require arbitration through FINRA is the disconnect caused by a lack of direct communication with their attorneys.
“Losing Michigan investors to outside attorneys is not a service to the clients or the State Bar of Michigan. It is increasingly problematic because you are getting very little contact or collaboration face to face between client and attorney,” Aiello said. “Since no deposition is taken in FINRA cases, we’ve noticed with cases filed in Michigan that the investor who is not represented by a Michigan lawyer most likely won’t have the chance to meet their lawyers until day of arbitration. The last five cases that I’ve been involved in haven’t had Michigan attorneys.”
While some financial advisers predict a major correction in the markets, Shea said the current upward trend can leave stockholders whose investments don’t perform well wondering if they’ve been misled by the financial consultants they hired to guide them.
“Clients come to us because for the last five or six years the market has been doing extremely well but their portfolios have done poorly,” Shea said. “To that end, the broker could be putting the investor into high commission investments so they make more money or the broker could be churning the market by constantly buying and selling.”
Also on the minds of Shea and Aiello is a new fiduciary rule, that when implemented, will be enforced by the U.S. Department of Labor (DOL.) The legislation, which, in part, applies higher standards to financial planners who oversee retirement accounts, was set to start taking effect last April, but has been put on hold by the Trump administration.
“We don’t know to what extent the fiduciary rule will get implemented. Right now it is in holding pattern, but if it gets implemented as written it changes the landscape by applying a heightened standard to brokers,” Aiello said. “Because the DOL hasn’t issued any guidelines as to what that responsibility is, the courts are being asked to define the rule’s meaning.”
Despite the sizable amount of Americans whose investments are affected by the outcome of the financial markets, Aiello said those figures do not translate into a larger number of defense attorneys specializing in FINRA issues.
According to Shea, “We do not see an increased focus in this practice area among Michigan attorneys, but we have seen a large spike in Internet-based, out-of-state attorneys willing to represent Michigan investors. This trend is a concern because we firmly believe Michigan investors are much better served by Michigan-based attorneys.”
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