While the vast majority of financial advisors serve their clients honorably, they sometimes make mistakes that can put your investments at risk or cost you a great deal of money. And sometimes they act unwisely, unethically, or even illegally.
If you have serious doubts or concerns about how your investments are being managed, it is important that you have a professional review your accounts as soon as possible. This will give you both piece of mind and the opportunity to take action before any mismanagement gets out of hand.
If you think that you have incurred significant losses because of your advisor’s actions, you may be able to recover your money.
I would be happy to have an initial conversation with you to assess your situation. I have designed my practice to have a uniquely broad understanding of securities issues. Unlike most attorneys in the securities field, I represent investors, financial advisors, and the companies financial advisors work for. I have a perspective few others have, and can anticipate and understand issues that attorneys with more limited practices and experience can offer.
If you hire me to be your advocate, I will keep you informed and involved as your case progresses. You may not see what happens in the background, but you will be able to rest at night knowing that you have the best representation possible.
Here are some of the questions investors often ask me:
- Did my financial advisor make inappropriate investments?
In making an investment recommendation, an advisor must make recommendations that are consistent with your risk tolerance, needs and investment objectives. Your advisor has a duty to know you and should recommend investments and trading strategies that are suitable for you and your situation.
An investment may be unsuitable if you do not have the financial ability to incur the risk associated with a particular investment; if the investment was not in line with your financial needs; or if you did not know or understand risks associated with certain investments.
Your advisor has a duty to understand your risk tolerance, your tax considerations, your prior experiences, and the level of return you want. It is your advisor’s duty to make recommendations that are appropriate and suitable for you. If your advisor breaches those duties and makes unsuitable recommendations, your advisor may be liable.
These are called Unsuitability issues.
- Are my investments diversified enough?
One of the most important rules of investing is diversification. If your broker concentrates your portfolio in any individual investment or type of investment, then the risk of losses in that portfolio is dramatically increased. If your portfolio declines in value because it was not diversified, your broker is potentially liable.
This is called Overconcentration.
- Is there too much trading activity in my account?
Churning occurs when your broker encourages and engages in transactions that are designed to generate commissions rather than benefit your account. Churning can occur even if you made money on all the transactions for the account.
Churning may be revealed by the cost/equity ratio in an account. If annualized total costs of doing business exceed the amount of return from investments, you may have a problem.
This is called Churning or Excessive Trading.
- Is my broker making unauthorized trades?
Your broker must have authorization from you or your agent (to whom you have given written authorization) to make purchases and sales in your account.
Your broker cannot accept an order unless you, or a person who has limited or full power of attorney in writing, gives your broker an order for the account.
Your spouse cannot place an order in an account unless your spouse’s name is also on the account.
If a transaction occurs in your account and you did not initiate or authorize it, you can contact the branch manager immediately, in writing, and request that the order be canceled.
Even if you have a discretionary account, your broker must follow your instructions with respect to the exercise of that discretion. For example, if you tell your broker not to buy anything risky or on margin, your broker has an obligation to respect those instructions. If your broker is not following your investment objectives, you may have a problem.
- I trusted my advisor...doesn't that mean anything?
It is important for you to understand that your advisor may owe you certain fiduciary duties, even when the account is non-discretionary. These duties include:
- The duty to recommend a stock only after studying it sufficiently to become informed as to its nature, price, and financial prognosis.
- The duty to carry out your orders promptly in a manner best suited to serve your interest.
- The duty to inform you of the risks involved in purchasing or selling a particular security.
- The duty to refrain from self-dealing or refusing to disclose any personal interest he or she may have in a particular recommended security.
- The duty not to misrepresent any fact material to the transaction.
- The duty to transact business only after receiving your prior authorization.
- Did I lose money because my advisor didn't give me good information?
If your financial advisor misrepresents material facts or omits to disclose material facts regarding an investment, and you lose money as a result, your advisor may be liable. Often these misrepresentations or omissions disguise the risk associated with a particular investment. Your advisor has a duty to fairly disclose all of the risks associated with an investment.
These are called Misrepresentation and Omission issues, and, at times, may amount to fraud.
- Did my broker engage in 'selling away?'
FINRA and regional stock exchanges have enacted strict rules regarding the selling of investments not approved by the brokerage firm. If your financial advisor recommended and you purchased such an investment and the investment is not reflected in the brokerage statement or the client did receive a confirmation directly from the brokerage house, there may be a problem with the investment.