When to Sue Your Financial Advisor for Giving You Bad Investment Advice
Written by
Chris Adam
Edited by
Cynthia Measom
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You may know someone who has either thought about or actually sued a healthcare professional for malpractice. But what about when it comes to your finances? Have you considered suing your financial advisor for giving you bad investment advice? It may not be as far-fetched as you think.
Here’s when you should consider suing your financial advisor when you’ve received bad advice related to investing — and what to expect if you do.
Bad Advice Means Bad Actions
One thing that investors agonize over is what constitutes “bad advice” from a financial advisor and what is actionable in courts of law. According to Heinter Legal, those actions can include the financial expert “making recommendations to buy unsuitable investments, failing to properly diversify investment portfolios, engaging in excessive margin use, selling away, unauthorized trading, engaging in fraud and breaching their fiduciary duties to their clients.” All of these actions generally fall into the categories of fraud or negligence.
Arbitration Is the Typical Process
Let’s say you’ve decided to pursue legal action against your financial advisor. One of the first things to know is that the process may look very different than what you see on television when it comes to lawsuits. That’s because these types of cases are often handled through Financial Industry Regulatory Authority (FINRA) arbitration.
What should you know about this type of arbitration? First, you can choose on your own to file a FINRA arbitration claim. Keep in mind that FINRA oversees brokers and brokerages and is overseen by the Securities and Exchange Commission (SEC).
According to KlaymanToskes, a leading national securities law firm, financial advisors can be held responsible for losses when they fail to meet their legal duties, as outlined in FINRA rules. According to the law firm, failing to meet their legal duties includes the following: “Acting with reasonable care when advising you; making sure that any and all recommendations they make to you are suitable for your unique goals, financial situation, and needs; acknowledging potential conflicts of interest or risks associated with their advice; and communicating all material information to you in a manner that is easily understandable.”
The Bottom Line
It may be easier than you think to take legal action against your financial advisor, provided you can prove they failed to meet their legal duties and you suffered losses as a result. Consult with an attorney to find out your options.
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