Millions of Americans rely on financial advice from a qualified professional. It’s something that friends, family, and business partners suggest. After all, you work and take care of yourself and your family, should you be adding more stress onto your routine by keeping up with your portfolio?
Relying on an advisor is normal, but you do this with the belief that the advisor has your best interest in mind, ultimately they’re a fiduciary. Sadly, for many people, this fiduciary trust is broken and your portfolio, which is your money, is mismanaged. You might incur losses, penalties, or worse.
Being angry and hurt is not an unreasonable emotional response, and you may be entitled to damages through a lawsuit or arbitration. That is if the losses to your portfolio can be proven to be caused by bad-faith acts from your advisor.
So, in short: You can sue your financial advisor. These types of suits are usually handled through an arbitration procedure in FINRA. FINRA is the Financial Industry Regulatory Authority. FINRA handles many of the regulatory and disciplinary actions associated with the financial industry, including advisors.
3 Examples of Fraud or Negligence from Financial Advisors
If you’ve lost a large sum of money or seen your portfolio dip beyond reason, you are probably dealing with some terrible feelings. Having this seemingly inexplicable event looming over your shoulders can cause stress and frustration. It’s also possible that you could be in financial trouble. But, losing money is simply not against the law. What is against the law is an investor being defrauded. You need to be able to prove that negligence, fraud, or misconduct was what caused your financial loss.
Investments and their associated financial tools, platforms, and strategies can be highly complex, even to a savvy investor. At times the negligence is obvious, but most of the time you need to be able to handle a lot of evidence, documents, and records in order to build a winnable case. That’s why it’s probably best to hire a securities attorney like those at our firm to handle your case.
You’re also probably not going to be able to sue a financial advisor directly. This is because of a clause in your investment contract. These contracts come with pre-dispute arbitration clauses. This means that legal recourse through a court is not a likely option, instead, you’ll need to go through FINRA’s arbitration process.
Unsuitable Investment
Your advisor needs to have recommended an investment strategy that is suitable to you. Suitability means that your age, income, net worth, objectives, and risk tolerance are all accounted for when picking a portfolio. This is not just good practice from the advisor’s end but it’s legally required. An unsuitable investment might result in a client not having sufficient cash to back a margin call: they might not be suited to handle a large loss: and they might not have been properly consulted when executing the strategy.
Excessive Trading (Churning)
If a broker buys and sells securities (like a stock) in an account in excessive manners, they might be engaging in churning. They’re engaging in this type of behavior because it results in them receiving a higher commission. Brokers that churn accounts usually have seemingly valid excuses as to why the trading activity looks the way it does. Victims of churning should definitely contact a securities attorney to take on their legal grievances.
Omission of Facts
As part of a broker’s duty to properly advise their clients there is the necessity for them to disclose all of the risks associated with an investment. Omitting or misrepresenting material facts, in other words, facts that are pertinent to the investment is illegal. Investors that lose money due to being kept in the dark can build a legal grievance against their advisor.
LSC Legal – Representing Defrauded Investors
If you’re seeking legal representation or counsel from a trusted team of attorneys with decades of combined experience contact our team today.
