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Beware the Registered Investment Adviser

RIAs must put clients’ interests first, but don’t always do so

Arnold and Cheryl Levy were a year away from retiring in the summer of 2009 when their investment adviser bought into a fund betting on a drop in emerging markets with almost $200,000 of Arnold’s retirement money. The Levys were coping with a family illness and didn’t notice the trade until that December, when the adviser, Jeffrey Liskov, alerted them to losses on the fund, the Levys say. According to court filings, they lost about $85,000 on the ProShares UltraShort MSCI Emerging Markets exchange-traded fund. “We were just beside ourselves,” says Cheryl, 67.

Liskov’s firm was a registered investment adviser, a category of company that has been billed as an alternative to traditional brokers. In theory, RIAs, which employ 285,000 advisers, are legally bound to put their clients’ interests first and typically charge fees instead of commissions. By contrast, most broker-dealers charge a commission, and the standards they must adhere to are less stringent; brokers are required to ensure that investments are “suitable” for customers, but they’re not under any obligation to put a client’s financial interests ahead of their own.