I am a senior citizen and suffered a huge loss of $100,000 in the recent stock market turmoil. Can I sue my financial advisor? I understand the ups and downs of the market, and I’ve weathered them before.
However, it’s different from the market as tech stocks and others are outperforming during this time frame. Months before all of this happened, I advised my financial advisor that I was retiring.
When my account was taking a loss, she did nothing to warn me that given the current situation it would be a good idea to move my assets to another area to minimize the loss and relocate when things calm down.
Other advisors I’ve consulted with now understand that there’s a term for doing this called “stop loss,” stop the loss. They also mentioned that she failed in her responsibilities as a consultant. She didn’t explain anything like high or low risk management, or any other aspect of the market.
The only time we met was when I contacted her about buying into different stocks. Other than that, she never called anything about my account at any time. Can I sue and if so how do I do it?
Feeling like breastfeeding
Dear FLS,
There are a lot of hurdles you need to clear in order to have a legal case against your financial advisor, and from what you’ve said here, they don’t seem to have been met. Any investment with an element of risk and the S&P 500 SPX;
The Dow Jones Industrial Average DJIA;
and Nasdaq COMP,
They have suffered significant losses this year: down 19%, 16% and 27.8% respectively.
Last year, you were on the back of the pig, and as a result you were a big fan of your financial advisor’s strategy. But no counselor is perfect. And no one – despite previous predictions – can predict the market. Even Warren Buffett, the Oracle of Omaha, makes mistakes. And when he does, they will be recognized. That applies to your financial advisor – and your good self.
But back to your question about suing your advisor. First, you need to make sure that you have established a trusting relationship with her. That is, she put your needs before yours and breached her fiduciary duty. Also prove that there is a direct connection between her actions and your losses and show that those losses are foreseeable.
The Financial Industry Regulatory Authority has regulations to ensure the protection of investors. Read more here. The Gibbs Law Group directly defines the difference between fraud, misconduct and negligence, and provides some examples of the latter, including improper investments, failure to provide relevant information and over-aggregation of investments.
Don’t wait for your court date yet. Most investment contracts include an arbitration clause. FINRA, and the Securities Industry and Financial Markets Association (SIFMA), a trade group representing securities firms, banks and asset managers, argue that arbitration saves all parties valuable time and money, and helps settle small claims from retail investors.
A good advisor
A good advisor understands your situation and “recommends only financial products suitable for your age, investment objectives, experience and desired risk level,” the law firm wrote in a blog on the subject. But negligent advisors sometimes steer you into risky or inappropriate investments in order to earn higher commissions.
Diversification helps protect investors from excessive losses, but does not prevent them. “Investment overconcentration occurs when a financial or investment advisor fails to diversify a client’s portfolio and risks losing the client too much,” he adds. In the year Your losses may be in different stocks as the overall market has plunged in 2022.
You can understand the concept of “stop loss” and how such an order comes about. That is an order given to the investor to sell the stock if it falls to a certain level, perhaps in consultation with the broker. But while that may stop the bleeding in your portfolio, it can also lead to you selling too many stocks at low prices without expecting a rebound.
There will be a paper trail, but it doesn’t seem like your advisor can be blamed for not contacting you as often as you’d like, even in such a chaotic market. Sometimes, the best action is no action at all. They lost $100,000. We don’t know if it’s 100% or 10% of your overall portfolio. In general, your investments should be more conservative as you approach retirement.
Obviously, if you consult an attorney, you will need to provide a more detailed description. From your letter, however, it sounds like you are upset about your paper loss, and your advisor is taking the blame. But as mentioned above, despite the conditions for suing your advisor, there are two people in this relationship, and in many cases the responsibility works both ways.
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