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TJ, Esq.
TJ, Esq., Attorney
Category: Business Law
Satisfied Customers: 12137
Experience:  JD, MBA
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I am an indpenedent CPA with a Masters in Finance and would

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I am an indpenedent CPA with a Masters in Finance and would like to start a financial advisory practice. I will obtain a Series 65, am a very honest person and do not plan on having access to clients funds. Assuming that I am careful and dilligent with my clients accounts, how much legal exposure is inherent in the profession from market fluctuations. Is there anything that I can do to mitigate litigation risk?
Submitted: 7 years ago.
Category: Business Law
Expert:  TJ, Esq. replied 7 years ago.

Hello and thank you for allowing me the opportunity to assist you.

Question: “Assuming that I am careful and dilligent with my clients accounts, how much legal exposure is inherent in the profession from market fluctuations. Is there anything that I can do to mitigate litigation risk?”

Answer: You would only be liable for your own negligence. Therefore, ordinary fluctuations in the market is not anything to be concerned about. Having said that, you could be liable for negligence if you put your client’s money into an investment that a reasonably prudent financial advisor would never invest in, and the client loses money.

For example, if you put your client’s money in various mutual funds found on the NYSE, and then the market dips, you are not likely to be liable. If you put your client’s money in a fly-by-night company located in Sudan, and it goes bankrupt 3 days later, then you may be in trouble.

That’s basically the rule in all professions (including the legal profession). Did the professional do what other reasonable professionals may have done under the circumstances, or was it unreasonable conduct?

Have I satisfactorily addressed your concerns? If not, then please feel free to ask for clarification.

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