What happens if a financial advisor loses you money?
INVESTORS: If you have suffered investment losses due to the negligence or fraud of your financial advisor, you can pursue legal recourse to help recover those losses.
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.
If your advisor gave you a prospectus or other marketing material that is misleading, and you relied on it while making an investment decision, you could file an arbitration claim against them for damages.
If you have received bad financial advice, you should start by making a formal complaint with your financial adviser and their company.
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.
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. Investment Losses?
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.
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.
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.
- "I offer a guaranteed rate of return."
- "Performance is the only thing that matters."
- "This investment product is risk-free. ...
- "Don't worry about how you're invested. ...
- "I know my pay structure is confusing; just trust me that it's fair."
How do I protect myself from a financial advisor?
- 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.
• 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.
Find out if he or she is registered with either the SEC or the state securities agency. Check to see if the firm or advisor has any disclosures. Make sure you understand the fees. Ask for a full disclosure of the financial advisor's fees.
Use an Independent Custodian. Most reputable financial advisors never take possession of your money. Giving them direct access makes it easy for them to steal funds.
It might come as a surprise, but your financial professional—whether they're a banker, planner or advisor—wants to know more about you than how much money you can invest. They can best help you achieve your goals when they know more about your job, your family and your passions.
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.
While an in-person meeting can provide closure, it might not be necessary. An email or phone call can suffice, especially if the relationship has deteriorated. Choose whatever method you're most comfortable with. Whether the conversation takes place over email or in-person, be polite but get to the point.
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!
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.
Investment advisors cannot guarantee the outcome of an investment since the financial markets can be impacted by many different factors. However, advisors can reference historic data and research to support their investment selection.
Do financial advisors get fired?
They may fire their advisor if they feel their advice is generic or not tailored to their specific needs. Clients want to know that their financial advisor is taking the time to understand their situation and goals and crafting a strategy just for them.
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.
If the advisor or their firm has any disclosures, they'll be categorized as criminal, regulatory and civil proceedings.
Many financial advisers charge based on how much money they manage on your behalf, and 1% of your total assets under management is a pretty standard fee. But psst: If you have over $1 million, a flat fee might make a lot more financial sense for you, pros say.
- Top financial advisor firms.
- Vanguard.
- Charles Schwab.
- Fidelity Investments.
- Facet.
- J.P. Morgan Private Client Advisor.
- Edward Jones.
- Alternative option: Robo-advisors.
