I am a senior citizen and have suffered large losses of $100,000 in the recent stock market turmoil. Can I sue my financial advisor? I understand the dynamics of the market as it pertains to its ups and downs and have weathered them before.
However, it has been different with the market in this time frame as tech stocks have taken a major hit as have others. I advised my financial advisor that I was retiring months before this all happened.
As my account was suffering losses, she did nothing to warn me that given the current situation it might be a good idea to move my assets to another area to minimize the losses — and come back at a later date when things stabilize.
I have now found out through other advisors that I have consulted that there is a term called “stop loss” to do just that, stop the loss. They also mentioned that she had failed in her duties as a counselor. She never explained anything such as managing high or low risk or any other aspect of the market.
The only time we had contact was when I contacted her about buying various stocks. Also, she has never called about anything related to my account at any time. Can I sue and if so how do I do it?
I feel like an offshoot
There are a lot of hurdles you have to clear to have a legal case to sue your financial advisor, and from what you’ve said here, it doesn’t sound like they’ve been met. Every investment has an element of risk and the S&P 500
Dow Jones Industrial Average
have suffered significant losses this year: by 19%, 16% and 27.8% respectively.
Last year, you would have been on the back of the pig and are therefore a big fan of your financial advisor’s strategy. But no advisor is perfect. And no one – despite previous predictions – can predict the market. Even Warren Buffett, the Oracle of Omaha, make mistakes. And he’ll admit them when he does. That goes for your financial advisor — and your good self.
But back to your question about judging your advisor. First you will have to prove that you have entered into a relationship of trust with her. That is, she has undertaken to put your interests before her own and that she has breached her fiduciary duty. You will also need to prove a direct link between her actions and your losses and show that those losses could have been foreseen.
The financial industry regulator has rules in place to ensure investor protection. Read more here. Gibbs Law Group clarifies the difference between outright fraud, misconduct and negligence and gives some examples of the latter, including inappropriate investments, non-disclosure of important information and over-concentration of investments.
Don’t expect your day in court, though. 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, say arbitration saves all parties valuable time and money and helps facilitate smaller claims from retail investors.
A good advisor
A good advisor should understand your circumstances “and recommend only appropriate financial products for your age, investment goals, experience and desired level of risk,” the law firm writes in a blog on the topic. “But sloppy advisers will sometimes steer you into risky or inappropriate investments in order to get higher commissions.”
Diversification helps protect investors from excessive losses, but does not prevent them. “Investment overconcentration is when a financial or investment advisor fails to diversify a client’s portfolio, exposing that client to excessive risk of loss,” he adds. Your losses could be across a wide range of stocks as the overall market crashed in 2022.
You may misunderstand the term “stop loss” and how such an order is obtained. This is an order placed by the investor, perhaps in consultation with his or her broker, to sell a stock if it falls to a certain level. But while this can stop the bleeding in your portfolio, it can also cause you to sell too many stocks at a lower price without waiting for a potential recovery.
There will be a paper trail, but it doesn’t seem likely that your advisor will be sued for not contacting you as often as you would like, even in a turbulent market like this. Sometimes the best action is inaction. You lost $100,000. We don’t know if that’s 100% or 10% of your entire portfolio. In general, as you near retirement, your investments should be more conservative.
Obviously, if you need to consult a lawyer, you will need to provide more details. However, from your letter it appears that you are upset about your losses on paper and your advisor is taking the blame. But regardless of the terms of suing your advisor, as stated above, there are two people in this relationship, and in many cases, liability works both ways.
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