Can You Hold a Broker Liable for Your Losses?
People who invest their hard-earned money do so for various reasons. Some want to protect their financial future, especially after they retire, some want to make a major purchase, like a home, some need to prepare for their children’s educational opportunities, while some others do it just for the fun of making profits. Whatever the reason is, all investors have only one goal – make money, not lose it. But what if, rather than making money, investors actually lose everything or a huge amount of their investment? Can they blame anyone for their loss, their financial advisor or broker, for instance, in order to recover those losses?
Financial advisors and stockbrokers and are held to a high degree of care in their dealings with the clients or investors they serve. Because these people look to their financial professionals for advice on how they can reach their goals, they, therefore, trust their financial professionals to give them the right recommendations. When brokers or advisors fail to meet the standard of care, however, and cause investors to lose money due to bad advice, an action for negligence or breach of fiduciary duty may be appropriate.
Considering financial advisors’ and stockbrokers’ legal duty towards their clients, the answer to the question above is, therefore, a “yes.” Yes, but only if their financial losses are the result of wrongful or negligent acts by their financial advisor, broker or an investment firm. This means that any unethical, negligent or fraudulent act their trusted advisor commits can be ground for them to pursue damages through a lawsuit or through Financial Industry Regulatory Authority, Inc. (FINRA) arbitration. (FINRA is a private corporation that operates the largest securities dispute resolution forum in the United States, and has extensive experience in providing a fair, efficient and effective venue to handle a securities-related dispute.)
Before filing a lawsuit against a broker, a financial advisor, or the firm for which this broker or advisor works, an investor may first need to review the contract he/she signed with the investment firm when he/she first became a client. This is because most investment firms mandate that, in the event of losses due to any form of wrongful acts, then damages may only be sought through arbitration. If this is what the signed contract says, then what must be filed is a Statement of Claim in arbitration rather than a lawsuit.
It is pointed out by Erez Law that broker negligence has many types, including: breach of fiduciary duty; failure to diversify; failure to supervise; Ponzi schemes; suitability claims (which is one of the most common claims of broker negligence. It refers to a broker mishandling a client’s money by purchasing securities that were unsuitable for the client’s portfolio and investment goals); and, churning (the act of making an excessive number of transactions so the broker earns more money on commissions).
In the event that a financial advisor fails to meet the appropriate standards of care resulting in significant financial losses, it would be a wise decision to talk to an attorney immediately to determine if you may be eligible to make a financial recovery.