For the past seven years I have used my bank’s private-investment For the past seven years I have used my bank’s private-investment department to fully fund a backdoor Roth IRA. I go into the branch, sign some papers, and as long as I see the dollar value decrease from one account and increase in another account, I consider the task complete.
This year when I went on the app to look at the account and set up another meeting, I realized that the adviser had messed up the transaction. My adviser missed a step, left the funds in the wrong account and, therefore, didn’t buy any shares. The funds sat in an account that only earned basic interest and did not see the gains or losses from the market.
‘I accept that some of the responsibility to follow through was mine. However, some of the responsibility also lies with the first adviser.’
The value of the IRA account increased about 20% that year (it was a good year). When I asked what my recourse was, I was told that it was my fault and that I should have followed through with the transaction. Upon hearing this, I went out and switched advisers. Same bank, different location. That was three months ago.
My new adviser offered to see if the bank would reimburse some of the difference that I would have earned. When I asked this adviser last month for an update on the bank’s answer, I got this response: “I just emailed him to see if there was any update because I know there was a request sent down on his behalf to fix the IRA issue. As soon as we hear anything …”
I accept that some of the responsibility to follow through was mine. However, some of the responsibility also lies with the first adviser. If I had messed up, let’s say bounced a check, the bank would charge me a fee. My belief is that the bank hopes that I will forget about this issue. I’m not going to. I have the finances to go to court on this, although I don’t want to.
If the bank ultimately says that it will not reimburse me anything, should I go to the Better Business Bureau or file a complaint with someone? Or should I let it go and use this as a learning experience?
Unhappy Investor
Dear Unhappy,
Both you and the adviser are culpable.
However, personal and professional responsibility are two very different kettles of fish.
Your adviser has a fiduciary responsibility to act in your best interests, and failing to carry out your wishes potentially — some would say “clearly” — breaches that fiduciary duty to you, the client. It appears that you can, by your telling, prove clear investment losses resulting from alleged incompetence or negligence.
For those who may not know how IRA conversions work: Backdoor IRA conversions — moving money from a traditional IRA to a Roth IRA — allow high earners, whose income exceeds the level permitted for Roth IRAs, to make contributions to a Roth IRA by effectively prepaying their retirement taxes. Roths make sense for people who expect to pay higher taxes in the future.
The Financial Industry Regulatory Authority has rules to help ensure that investors are protected. There is obviously a difference between outright fraud, misconduct and negligence and, in your case, failure of an adviser to do their due diligence and ensure that the client’s wishes were carried out. (The Better Business Bureau, meanwhile, is a nonprofit that rates businesses based on consumer feedback.)
Not all money managers are fiduciaries — that is, professionals who have to act in their client’s best interest under the Investment Advisers Act of 1940. I assume your adviser is a fiduciary rather than, say, a broker-dealer, and I hope they are a member of Finra. Certified financial planners have similar codes of ethics.
Arbitration clauses
Most investment contracts include an arbitration clause for resolving disputes. For some clients, that’s not ideal. For their part, Finra and the Securities Industry and Financial Markets Association, a trade group representing securities firms, banks and asset managers, argue that arbitration saves all parties time and money.
Your second adviser spoke out of turn by acknowledging, even tacitly, that the bank did not meet its standard of professional conduct or fiduciary duty. The result of your claim will depend on the bank’s willingness to admit its mistake — and perhaps on the amount of pressure you are willing to leverage in order to get some compensation.
And you’re right: The scales are not equally balanced. If you exceed your credit-card limit or bounce a check or fail to make a mortgage payment, the bank will indeed be looking for its pound of flesh. In the case of your adviser, you have a bank and, probably, an employee who may be trying to cover their tracks and hope this goes away.
Your second adviser spoke out of turn by acknowledging, even tacitly, that the bank did not meet its standard of professional conduct or fiduciary duty.
You will, in all likelihood, need to seek legal counsel, gather as much evidence as you can and, most important, detail any instructions that you put in writing that were not subsequently carried out. You can file a claim through the arbitration process with Finra, which would be less grueling and expensive than going through the courts.
“Some investors are under the mistaken belief that to seek financial recovery, they must demonstrate that a broker or firm committed securities fraud,” according to the securities law firm Shepherd Smith Edwards & Kantas, which has offices nationwide. “Broker negligence can also be grounds for an arbitration claim to recover damages if losses result.”
This bank dropped the ball. “Negligence by a broker or investment adviser can occur in many ways,” the law firm adds. “It doesn’t have to involve intentional misconduct. When a financial adviser and/or financial firm fails to provide a customer with the standard of care they should have received, this is known as broker negligence.”
Good vs. bad timing
Owning your part in these events may help you come up with a more sober strategy, particularly if it means you don’t spend a fortune on lawyers to force the bank to admit its mistake. If this had happened in 2022, when the S&P 500 SPX fell 18%, rather than 2024, when it rose 25%, you would probably be opening a bottle of champagne.
I’m reminded of this Moneyist reader who “begged” her adviser to sell her equity holdings just before the market downturn in April. “If he had moved my money out of the market weeks ago, much of my loss could have been prevented,” she wrote. “I am frustrated and would like to be able to recoup some of my losses.”
She was 68, planning to retire soon and, understandably perhaps, was spooked by President Donald Trump’s impending tariffs. “For several weeks I have requested — via phone calls and emails — that my financial adviser move my investments out of the market and into something safer such as CDs,” she wrote. “His response was always, ‘“I haven’t forgotten about you.’”
As I told the reader, her adviser’s inaction, while not cool from a client perspective, could have been a blessing in disguise. History tells us that through the most dramatic twists and turns of the U.S. economy and the stock market, whether it’s the Great Depression or the recession of 2007-09, the stock market abides. It just takes patience and nerves of steel to ride along.
All that context aside, nothing absolves an adviser from fulfilling their fiduciary duty.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
The Moneyist regrets he cannot reply to questions individually.
Previous columns by Quentin Fottrell:
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