An Unexpected Peril of Going Independent: Employment Claims

While it happens all too often to brokers, stock loss claims are rare in the registered investment advisory world, says Brian Hamburger, founder of MarketCounsel and the Hamburger Law Firm. But a fast-growing segment in the litigation of RIAs—and another peril of going independent—is the employment-related claim, Hamburger said.

Hamburger says his firm is seeing an uptick in the number of these claims being filed against RIAs, including wrongful termination, sexual harassment, age discrimination and abuse-related cases.

These cases are not very common at the large brokerages, which have more mature employment practices. But RIAs do not have proper employment policies and procedures; many are simply naïve and don’t know what’s involved in hiring employees, such as paying overtime.

Sharron Ash, chief litigation counsel at the Hamburger Law Firm, said most advisors just don’t expect people they know and trust to betray them. 

"It comes as a surprise to someone who has been an advisor but has not had to run a business," Ash said. "He hasn't anticipated issues he has to deal with, and isn't equipped to deal with them."

(Ryan W. Neal contributed to this report.)

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