It seems, contrary to popular belief, regulators don’t always favour clients.
Blogger Bill Singer reports that in 2011, two U.S. investors filed a compliant with FINRA against Morgan Stanley, Smith Barney and RBC Capital Markets. They alleged the banks offered them unsuitable investments after discovering they were taxed on their KKR Financial Holdings returns, which involved individual retirement accounts.
They were looking for reimbursement of the taxes, plus a 30% surcharge. They also sought to have FINRA filing costs covered.
Singer says the banks denied the allegations and “sought the expungement of this matter from respondent Menefee’s—[their advisor’s]—Central Registration Depository records.”
FINRA also found the couple’s claims were “erroneous,” saying the allegations weren’t supported. “Although the claimants were unpleasantly surprised that tax was due on the income generated by the investment, the cause of their surprise was their failure to read the schedule K-1 tax documents they received,” the regulator said, rather than due to their advisors’ failure to inform them of the taxes.
Singer insists this case teaches clients to read all tax and investment materials. Read more.
Also read:
Help clients avoid tax surprises
New estate tax rules in Ontario
Tax-efficient investor behaviour