Can you sue a financial advisor for losing money?
The short answer is yes—if your financial advisor has acted negligently or fraudulently, then it may be possible to sue them for damages resulting from their advice or actions. Advisors are held at a high standard, so any breach of trust or duty can be grounds for a lawsuit.
Yes. Specifically, if your advisor was licensed through the Financial Industry Regulatory Authority (FINRA), you can file an arbitration claim to get some or all of your money back. Whether your claim will succeed depends on exactly what happened. All investments carry risk.
In this situation, you may pursue damages for theft through the Financial Industry Regulatory Authority (FINRA) arbitration. A lawyer can help you handle this process to secure damages for your financial losses.
However, there are other less obvious guidelines you must adhere to so you can avoid getting sued as a financial advisor. In 2022, the Financial Industry Regulatory Authority (FINRA) received 11,180 investor complaints—less than the 14,311 received in 2021 but far greater than the 5,400 received in 2020.
• Misleading clients, and not disclosing certain fees or associated risks of an investment. • Advising clients with information based solely on self-serving commission or fees. • Entering clients into unsuitable, risky investments. • Failure to understand the risks of a client's investment.
Red Flag #1: They're not a fiduciary.
You be surprised to learn that not all financial advisors act in their clients' best interest. In fact, only financial advisors that hold themselves to a fiduciary standard of care must legally put your interests ahead of theirs.
There are a few common reasons why investors may choose to sue their financial advisor. For a successful lawsuit, there must be evidence to show that the financial advisor committed fraud or acted negligently and that these actions caused your investment losses.
- They are a part-time fiduciary.
- They get money from multiple sources.
- They charge excessive fees.
- They claim exclusivity.
- They don't have a customized plan.
- You always have to call them.
- They ignore you or your spouse.
Also be on the lookout for excessive trading within your account. An unscrupulous advisor or broker could engage in a high volume of transactions simply to generate commissions for themselves. This practice is known as churning, and while this may not seem like outright theft, it's illegal.
Research Your Advisor
If the advisor has any designations, such as the CFP® certification, look them up through those organizations to research any disciplinary action. Run a quick web search through your favorite search engine, and include the advisor's name and “scam,” “theft,” or any other relevant terms.
Can I sue my friend for bad financial advice?
A person could sue you for damages if you offered advice illegally and then: the portfolio halved in a market crash. the portfolio was lost to a lawsuit because your advice left the investments more open to creditors. the assets were transferred to someone other than who was in the will due to your advice.
Instances when you can Sue your broker or financial advisor. Financial advisors and brokers can fail to perform their professional duties as expected. Consequently, they may be held liable for their client's investment losses.
Financial advisors and insurance agents may have a certain reputation in many circles. While I believe the majority are honest, some advisors may give the rest a bad name by focusing on the commission instead of the client. And, even if you meet an honest advisor, how can you know they will do the job suited for you?
A negligence claim requires that the person bringing the claim (the plaintiff) establish four distinct elements: duty of care, breach, causation, and damages.
It's an investment. Failing to generate leads can lead to stagnant growth or a decline in business. 2. The Statistics: 80-90% of financial advisors fail and close their firm within the first three years of business.
Negligence is the failure to behave with the level of care that a reasonable person would have exercised under the same circ*mstances.
Poor performance, high fees, strained communication and stagnant advice are among the reasons to look for a new advisor. Kevin Voigt is a former staff writer for NerdWallet covering investing.
An advisor who believes in having a long-term relationship with you—and not merely a series of commission-generating transactions—can be considered trustworthy. Ask for referrals and then run a background check on the advisors that you narrow down such as from FINRA's free BrokerCheck service.
- Step 1: Evaluate the performance of your investment portfolio. ...
- Step 2: See if the financial advisor conducts an annual tax review. ...
- Step 3: Check if the advisor is aligned to your risk appetite. ...
- Step 4: Ensure your financial advisor listens.
In theory, if you have lost money because your broker (or any financial institution) gave you bad advice, mismanaged your investments, misled you, or took other unlawful or unethical actions, you can sue for damages. If these breaches of duty are provable, the "merits of the case" are strong, as a lawyer would say.
What makes a bad financial advisor?
If you feel your Financial Advisor evades or ignores questions, changes topics frequently, or avoids details about commissions, then it could be worth considering if they are a good fit for your needs. Every advisor should make a good faith effort to help you understand all aspects of your plan.
Federal securities law prohibits financial advisors from stealing your money. In some cases, brokers may also misappropriate funds by transferring them from client's accounts or to shell companies or accounts that they control.
- Make sure they are a Certified Financial Planner (CFP). ...
- Make sure your advisors or their firms (and your investments) are registered with the SEC.
- Check their past for SEC rule violations.
For the average financial advisor (who makes about $90,000 - $124,000 per year depending on which source you use), that 13% chance represents more than $11,000 in lost income. But that's in an average year — in reality, this number could be much higher!
The retention rate is low: By the fifth year, only 15-16% of advisors will still be in business. Over 90% of financial advisors in the industry do not last three years.
