There are many different investment vehicles from which an investor may choose when thinking about their financial future and goals. Some investors have the knowledge and experience to select among the different options, recognizing each of their benefits and disadvantages. For others, however, the experienced guidance of an investment broker is necessary. This may be extremely helpful for investors, but it may also create difficulties if the broker does not take their role seriously. Even worse, some brokers may use an investor’s lack of knowledge regarding options like tenant-in-common investments to their advantage, exploiting their financial accounts for personal gain. At the Law Office of Steve A. Buchwalter, our Los Angeles securities fraud lawyer has helped many Southern California investors who have been burned by their brokers, and he is prepared to assist you with asserting your rights.Understanding a Tenant-in-Common Investment
A tenant-in-common (TIC) investment is primarily used in the real estate sector. The TIC vehicle allows a small group of investors to co-invest in a property. One of the main advantages of setting up an investment as a TIC is that the members may take advantage of certain tax implications and preserve equity in their investment. Many investors opt for this arrangement instead of forming a limited liability company or another business entity to own the real estate.
During the 1990s, tax-deferred 1031 exchanges emerged as a prominent new real estate industry. Individuals who promoted this option would solicit and pool funds from investors to acquire real estate. An investor participating in the pool could group their investments and more easily locate replacement property to ensure that they received continued capital gains tax deferment status.
Another advantage that TIC investments offer is the ability to spend 1031 exchange funds promptly following the sale of the previous property. Also, the investors do not bear the responsibility for the day-to-day operation of the investment. Finally, pooling resources among investors allows each investor access to higher-grade investment opportunities that they would otherwise be unable to reach.The Risks of Tenant-in-Common Investments
There are a variety of risks associated with TIC investments that a broker must disclose to an investor. According to the law, a broker owes an investor the highest level of care when advising them about financial decisions and the risks associated with potential investment vehicles. As a fiduciary, the broker must make decisions that are in the best interest of the client and their investment goals, even if an alternative decision would provide a financial boon for the broker.
Some of the risks that a broker should disclose include that TIC investments may be overpriced and sold for far more than a property is actually worth. In the event that the property value declines, the investors may have difficulty refinancing it or offloading it in some other manner. Some brokers who offer TIC investments may also charge excessive fees. With these fees, even if the investment doesn’t decline in value, the costs and fees of a securities TIC are often higher than what the tax would be if the investor just paid the tax. Finally, a broker should ensure that their client has a good working relationship with the other investors in the TIC investment. In many cases, the TIC investors do not know one another, but any decision about the governance of the TIC investment often requires unanimous agreement among the investors.
If a broker fails to advise a client about the risks involved with a TIC investment, or if they otherwise mislead an investor client into making an inadvisable financial decision, the investor may sue the broker for negligence. If the investor can show that the broker failed to act according to the applicable standard of fiduciary care, the investor will be able to receive damages amounting to the difference between the actual value of their accounts and the estimated value of their accounts had the broker taken the proper measures to inform and assist them.Retain a Dedicated Los Angeles Attorney to Hold Your Broker Responsible
If you have been burned by your broker, you likely are entitled to compensation. Los Angeles attorney Steve A. Buchwalter has previous experience working as a stock broker, which means that he knows exactly which rules and regulations apply to your broker and whether you have been harmed. He proudly represents clients looking for a broker negligence lawyer in many areas of Southern California, including Beverly Hills, Pasadena, Irvine, Newport Beach, Ventura, and Santa Barbara. Call us at (818) 501-8987 or contact us online to set up an appointment to discuss your situation.