| Read Time: 7 minutes | Breach of Fiduciary | Brokers & Advisors | Investor Losses | News & Articles |

People hire financial advisors and brokers to grow and protect their money. Financial advisors have advanced education and training, which should provide their clients with valuable insight and accurate financial advice. Individual investors expect that their advisors will not defraud or harm them in any other way.

Market volatility is difficult to predict with any certainty. Markets dip and rebound over time. A financial advisor must guide you through those difficult times and offer you sound investment advice to minimize or avoid losses. 

Some investments are riskier than others. Brokers and financial advisors need to understand their clients’ risk tolerance, as well as their clients’ investment needs. Losses could ruin years of hard work and financial planning. 

Market volatility is one thing—negligence, deception, and fraud are something else entirely. Therefore, you should review your portfolio closely to see if you are a victim of misconduct.

If you lost money on investments based on a broker’s or financial advisor’s advice, you could have the right to sue the brokerage over losses. Your rights are valuable. Do not trust them to just any attorney. Robert Wayne Pearce and his team with the Law Offices of Robert Wayne Pearce, P.A., have recovered over $125 million in stock market losses for his clients. 

For over 40 years, Robert has fought for investors who fell prey to negligent financial advice. Robert and his team have extensive experience holding brokers and financial advisors liable for misconduct and negligence in Florida and across the United States.

How You Can Sue Your Financial Advisor for Losses

Investing your money in securities is the fastest and most reliable way to grow wealth. Putting your money in a savings account with an interest rate near zero is not beneficial, even though you cannot lose that money. Intelligently investing in securities can help you protect your retirement nest egg, save for college or a rainy day fund, or grow an inheritance for your family.

Still, investing in securities like stocks, bonds, options, and other investment vehicles can be overwhelming and confusing to the average investor. Therefore, seeking a financial advisor’s advice to steer you toward the right investments is the smart thing to do. 

Regulatory Protections

The stock market’s performance seems to dictate the economic trends in the United States. Experience continues to teach us that people rely on the markets’ performance to preserve their savings. Otherwise, individuals who placed money into accounts like 401(k)s could lose their retirement fund.

Recessions and depressions can arise from a market crash. Accordingly, the federal government heavily regulates the securities exchanges operating in the United States. State laws also work to protect investors. These laws try to prevent market crashes and stop people from losing their fortunes. 

Federal and state regulations also govern the actions of financial advisors. FINRA, or the Financial Industry Regulatory Authority, is a self-regulating organization governed by the Securities and Exchange Commission or SEC. FINRA certifies and disciplines financial advisors and provides investors a forum to settle their disputes through arbitration or mediation.

Ethical Duties of a Financial Advisor or Broker

Unfortunately, regulations do not deter negligence and misconduct among financial advisors. Section 10(b) of the Securities and Exchange Act of 1934 (the 1934 Act) established the minimum standards for financial advisers and brokers. The law protects investors from financial professionals who violate the 1934 Act by manipulating or deceiving investors. 

The 1934 Act gave rise to the SEC and its regulations. 10b-5 of the SEC rules expands on the 1934 Act. The SEC regulations say that financial advisers violate the law by:

  • Using any device, scheme, or other plans to defraud investors;
  • Making any false or misleading statements of fact;
  • Omitting a material fact, that should have been communicated to the investor under the circumstances; or
  • Engaging in any act, practice, or business conduct that is fraudulent or deceptive during the purchase or sale of securities.

These rules apply to securities traded on the national exchanges like the New York Stock Exchange and NASDAQ, over-the-counter (OTC) securities, and other investments.

FINRA Ethical Rules

FINRA also provides a code of ethics for financial advisors to follow if they are a member of FINRA. FINRA’s rules serve to protect investors from fraud, overreaching, undue influence, and manipulative practices. FINRA’s rules prohibit the following conduct:

  • Recommending an unsuitable purchase for an investor after considering the investor’s age, financial situation, experience with investing, and financial strategy;
  • Buying or selling securities without the investor’s consent or without the investor’s written authority to buy and sell;
  • Switching customers between mutual funds without any basis;
  • Misrepresenting material facts or failing to disclose material facts regarding a recommended investment;
  • Removing shares, securities, or funds from an investor’s account without authorization;
  • Charging excessive commissions, premiums, or markdowns for buying and selling securities;
  • Providing a guarantee to the investor that the securities will not lose value or will reach a specific price, or agreeing to a loss-share arrangement;
  • Engaging in private sales of securities with the investor without obtaining approval from the financial institution or brokerage firm;
  • Ordering a security from the brokerage firm’s account before entering a limit order for the customer, also known as trading ahead;
  • Failing to publish customer’s limit orders;
  • Failing to use due diligence to ensure that the customer received the best price at the time of the purchase or sale; 
  • Buying or selling a security based on insider, or non-public, information; or
  • Using manipulation, deception, or fraud to induce a party into a transaction or to complete the transaction.

Even with all of these protections in place, private investors can lose their money because of unscrupulous, fraudulent, or negligent financial advisors. 

Registered financial advisors owe a fiduciary duty to their clients. The duty is similar to that an attorney owes a client. Not all financial advisors or brokerage firms owe the same legal duties to their clients. You must consult your investment loss recovery attorney for advice if your investment broker or advisor is a registered investment adviser.

Types of Claims Investors File When Suing Their Financial Advisor

Investors who lost a substantial amount of money often ask, Can I sue my financial advisor? The answer is yes, if the investor lost money based on the investment adviser’s misconduct. 

The types of claims the investor can bring depend on the situation and the relationship between the investor and financial advisor. The 1934 Act, SEC rules, and FINRA regulations often form the basis of lawsuits against financial advisors.

Investment loss recovery attorneys frequently file claims based on:

  • A breach of fiduciary duty if your registered investment adviser failed to protect your best interests;
  • A claim of an unsuitable investment;
  • A claim of misrepresentation or omission of material fact;
  • A failure to diversify the investor’s portfolio, thereby exposing the investor to the risk of substantial losses;
  • A claim of excessive trading, which is also known as churning, if the broker buys and sells without a good faith basis to increase commissions; and
  • A claim of unauthorized trading when brokers buy or sell securities without the permission of the investor. 

FInancial losses due to a financial adviser’s failure to observe these rules could be grounds for a lawsuit. However, you must consult an experienced and dedicated investment loss recovery attorney to determine your rights and how you should proceed. In some cases, pursuing criminal charges against your broker as well as a monetary remedy is appropriate.

Should You Sue Your Financial Advisor in Court or Go to Arbitration?

You must consult your investment loss recovery attorney right away to discuss this question thoroughly. The answer depends on the legal agreement you had with your broker. 

Some brokerage firms and financial advisors include binding arbitration clauses in their contracts. Therefore, your only legal avenue to resolve a dispute with your broker is through arbitration if your agreement with them contains a binding arbitration clause.

Arbitration

FINRA provides a forum to either arbitrate or mediate disputes between individuals and brokers or financial advisers. All claims filed against financial advisors are highly complex legal matters. Arbitrating your case against your broker in the forum provided by FINRA could help you resolve the case quickly and efficiently. 

Arbitration and mediation with FINRA do not necessarily mean that the investor is at a disadvantage. FINRA exists to protect investors from fraud and wrongdoing. FINRA’s arbitrators will hold financial advisors to the highest professional standards and not necessarily side with the investment advisor.

Arbitration is a trial. The arbitrators listen to witnesses testify, review exhibits, and determine credibility when ruling on a case. Like jurors in a court of law, the arbitrators find the facts according to the testimony and then apply them to the law. In other words, you have a chance to tell your story.

Challenging an Arbitration Award

FINRA will enforce the award if you win in arbitration, just like a court will enforce a judgment. 

Although arbitration is binding, courts of law can review arbitrators’ awards to ensure fairness. A court will not overturn an unfavorable award unless the person who appeals the award proves something was fundamentally wrong with the arbitration process. Issues like bias, manifestly disregarding the law, or deciding the case without considering the evidence might allow a court to overturn an arbitrator’s award. Courts are very reluctant to overturn any arbitration award.

Filing a Lawsuit

You will have the option to file a case in court if there is no binding arbitration clause in your brokerage agreement. Courts are notoriously slow. Additionally, courts expect strict adherence to all procedural rules, which also slows the case down. However, you might have a right to ask a jury to hear your case. 

A jury made of people from the community might sympathize with an individual investor over an all-powerful investment brokerage. However, any lawyer who has tried cases before will tell you it is incredibly difficult to predict what a jury might do.

You must have a frank discussion with your investment loss recovery lawyer about the benefits of taking your case to court or submitting to arbitration. 

Statute of Limitations Concerns

Investors who lost money and want to sue their financial advisor must know the applicable statutes of limitations. Statutes of limitations protect people against lawsuits based on allegations that occurred years before. Key evidence might go missing, or witnesses’ memories could fade over time. Therefore, courts want lawsuits filed in court shortly after the event giving rise to the allegations occurs.

Most statutes of limitations are easy to follow. The statute of limitations concerning suing an investment adviser is not as clear. FINRA extends arbitration eligibility for six years after the loss. However, federal courts apply a two-year statute of limitations to claims filed under Section 10 of the 1934 Act and 10b-5 of the SEC regulations. You might not have a right to file for arbitration if the statute of limitations ran out, even if you remain eligible under FINRA’s rules.

You must consult an attorney with vast knowledge and experience representing investors who sustained huge losses to protect your rights.

Delaying Action Could Irreparably Harm Your Rights

Reviewing your portfolio occasionally is a sound practice. An in-depth review of your financial situation quarterly, at least, will ensure that you spot any irregularities in your account. You could lose valuable evidence if you wait too long to protect your rights. Thus, you must review your portfolio with a seasoned investment loss recovery attorney right away if you notice something amiss. You might be the victim of financial advisor fraud, misconduct, or negligence. 

Why You Need an Experienced Investors’ Rights Attorney to Sue Your Financial Advisor for Losses

For over 40 years, Robert Wayne Pearce and his staff with the Law Offices of Robert Wayne Pearce, P.A., have represented investors who fell victim to misconduct by a financial advisor or broker. Robert knows the nuances and complexities of suing a financial advisor for investors’ losses. You can rely on his experience, determination, and knowledge to help you maximize your recovery. Contact Robert and his team with the Law Offices of Robert Wayne Pearce, P.A., today at 561-338-0037 for a free consultation.

Author Photo

Robert Wayne Pearce

Robert Wayne Pearce has been a trial attorney for more than 40 years and is the founding partner of The Law Offices of Robert Wayne Pearce. You can learn more about Robert and his accomplishments by clicking here.

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