Most people who come to our law offices have relied on a financial advisor to help them invest and protect their money. While we have seen hundreds of unsophisticated and inexperienced investors lose money as a result of the negligent or intentional actions of their financial advisors, they are not alone. Generally, no matter how educated an investor is, if they are not savvy in the securities markets or know about the products sold,  they will rely on their securities broker to provide them with investment guidance and insight.  We have seen doctors, lawyers, accountants, scientists, and financial professionals who have been the victims of financial fraud or broker negligence. Often, these people blame themselves for being duped.  But this is not the reality.  The truth is that securities professionals receive advanced education and training, and must pass a series of exams as well as obtain certain licenses, in order to sell securities to the public. So, it is quite understandable that their customers rely upon them for sound and unbiased advice, and to protect them from financial harm in accordance with their specific investment objectives. 

The Most Common Reasons For Suing Your Financial Advisor for Investment Losses

Just because you lost money in your brokerage account does not give you the right to bring a claim against your stockbroker. You also need a valid legal claim.  Brokers and financial advisors can be sued in their professional capacity for a number of types of claims or causes of action. The most egregious types of these claims against stockbrokers involve forgery, theft, and elder fraud.

In the more garden variety types of claims, negligent brokers steer an investor’s money into risky, inappropriate, or unsuitable investments, generally motivated by the promise of higher commissions. Our lawyers handle a broad variety of investment fraud and broker negligence cases. Some of the more common types of cases that we see involve:

1. Conflict of Interest: Under the Regulation Best Interest Rule, your broker or investment advisor owes a duty to not put their own interests ahead of yours. The  Regulation Best Interest rule borrows principles from fiduciary duty concepts. It was established to align the broker’s standard of conduct with their retail customer’s  reasonable expectations by requiring that they “act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker-dealer ahead of the interests of the retail customer.”

2. Breach of Fiduciary Duty: A broker’s fiduciary duties to its customers include, among others,  that of recommending a stock only after studying it sufficiently to become informed as to its nature, price, and financial prognosis; carrying out orders promptly and in a manner best suited to serve the customer’s interests; informing the customer of the risks involved in purchasing or selling particular security; refraining from self-dealing; not misrepresenting any material facts to the transactions, and transacting business only after receiving proper authorization from the customer.

3. Unsuitable Investments: Brokers and financial advisors can only recommend securities that fit within their customer’s specific investment profile. The suitability rule states that the customer’s investment profile “includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs [and] risk tolerance”

4. Material Misrepresentations or Omissions: Brokers must make complete, accurate, and honest representations to their clients. Making a misrepresentation in this context means that your broker has made a false or untrue statement about any material feature of an investment. A claim for an omission arises where your broker has failed to fully disclose any feature or risk of an investment that would be material to your investment decision.

5. Concentration: This is also referred to as a “lack of diversification.” This means that the broker has put too much of your account into one single investment,  one type of investment, one industry sector, or one geographical area.  Concentration can result in your entire account declining when that one sector or type of investment declines.

6. Excessive Trading: This claim (also known as churning) occurs when a broker makes frequent buys and sells in a customer account for the purpose of generating commissions. This can happen with any type of security, including stocks, bonds, and annuities (called “twisting”). Because certain investments, such as bonds, are generally designed to be held for a longer-term, the measure of excessive trading in bonds is different from that for stocks.

7. Unauthorized Trading: A broker must have express authority to trade in your account. This means that the security, amount of the shares, and share price must be agreed to by the customer. In order to make a trade on a discretionary basis, the broker must have the customer’s approval in writing and on file at the firm.

Under both the federal and state securities laws as well as  FINRA regulations, investors cannot hold brokers liable for damages simply because they lost money.

Before you can bring a claim, the investor must be able to show that their financial advisory committed fraud or omission,  or acted in a negligent manner and that there is a causal connection between that fraud or negligence and the investor’s losses.

Bringing an investment fraud case is highly complex. Our law firm has brought hundreds of investor claims before the Financial Industry Regulatory Authority (“FINRA”). An experienced attorney can help present the important evidence to bring a compelling, persuasive legal case.

If You have a Brokerage Account,  you May be Subject to Mandatory FINRA Arbitration

In a majority of securities fraud or negligence cases, investors are not technically eligible to file a claim in court against their stockbroker or financial advisor. Most current investment agreements contain mandatory arbitration provisions. If your brokerage firm agreement contains a “pre-dispute arbitration clause,”  this means that you will most likely be required to file your case through FINRA arbitration.  

Although the FINRA arbitration process is similar in some ways to traditional court litigation, there are some very important differences. If you are bringing a FINRA arbitration claim against a bad broker, it’s important that you work with a qualified investment fraud attorney who has extensive experience with the FINRA arbitration rules and regulations.

Contact Our Former Wall Street Attorney to Discuss Whether You Can Sue Your Financial Advisor

If you or your loved one has suffered investment losses as a result of investment fraud or broker negligence, contact the offices of Investment Fraud lawyer Melanie Cherdack for a free consultation. Because she has been in the trenches as a former Wall Street attorney, Melanie Cherdack and her team of experienced attorneys have seen just about every type of investment fraud or investment scam. While almost every investment carries a degree of uncertainty and risk, you may have been unnecessarily exposed to such risk. Former Wall Street securities attorney Melanie S. Cherdack and her team of lawyers represent individual and institutional investors who are unwitting victims of investment fraud and broker negligence. She heads up a group of attorneys who represent investors across the United States and the Americas. Contact us by filling out our online contact form, or calling 844-635-1609.