If you have suffered considerable investment losses, you may wonder if you can sue your financial advisor or broker to recover damages. Suppose the losses are due to broker negligence or fraud. In that case, you may be able to sue your financial advisor by filing an investment fraud lawsuit — or, more commonly, a FINRA arbitration claim.
What is FINRA?
The financial services self-regulator, The Financial Industry Regulatory Authority (FINRA), provides regulatory services to the financial industry by licensing and regulating brokerage firms. FINRA also operates the largest dispute resolution forum in the securities industry. FINRA Dispute Resolution is the forum for almost all disputes between investors, brokerage firms, and brokers.
What duties do my financial advisor and brokerage firm owe me?
Financial advisors and brokerage firms owe their customers a duty of care and loyalty. The advisor must use the standard of care and diligence needed to protect the customer’s interest. Failure to fulfill that duty may be considered broker negligence or malpractice by your broker. The duty of loyalty requires that the financial advisor refrain from self-dealing and place the customer’s interests first.
Conflicts of interest may arise if your brokers’ typical method of compensation is through commissions on sales. This may tempt some brokers to excessively trade or churn the account to generate commissions.
Your financial advisor or broker also has a duty to follow your instructions and to execute orders promptly at the best available price. Unless you have given the broker written discretionary authority over the account, the broker may trade only after receiving prior authorization from you.
Your financial advisor or broker also has a duty to disclose all material facts relating to proposed investments and not to make any misrepresentations and to disclose the risks of any proposed investment. Your advisor has a responsibility to learn about your customer profile and the investments being recommended and to only recommend securities that are suitable for you, considering your specific investment objectives, financial circumstances, level of sophistication, and risk tolerance. Your brokerage firm also has a duty to reasonably supervise their brokers in order to enforce compliance with securities laws and to prevent violations.
FINRA Rules and Guidelines of Ethical Conduct
FINRA rule 2010 Standards of Commercial Honor and Principles of Trade says that “a member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.” Rule 2010 is wide ranging and applies to many different aspects of the securities industry, but to sum it up, dishonest conduct is prohibited.
Under the guidelines of ethical conduct, your financial advisor or broker is not allowed to:
- Make recommendations for the purchase or sale of a security that is not suitable for you, given your age, financial situation, investment objectives and investment experience.
- Engage in a private securities transaction with you or other customers (selling away).
- Purchase, sell or remove securities in your account without notifying you first. Switch you from one variable annuity to another with no legitimate reason.
- Intentionally misrepresent or fail to disclose material facts concerning an investment.
- Charge a customer excessive mark-ups, markdowns or commissions.
- Make specific price predictions or guarantee your stock will not lose money
- Use any manipulative, deceptive or other fraudulent tactics.
How do I check out my Financial Advisor’s Record?
You may not be unaware that FINRA offers a free tool to help investors make informed choices about brokers and brokerage firms and provides easy access to investment adviser information.
FINRA’s BrokerCheck tells you instantly whether a person or firm is registered as required by law, to sell securities (stocks, bonds, mutual funds and more), offer investment advice or both. It also gives you a snapshot of a broker’s employment history, licensing information and regulatory actions, arbitrations and complaints.
What are Common Reasons to sue my Financial Advisor or Broker?
Haselkorn & Thibaut represents investors who have been harmed by broker and broker-dealer fraud and misconduct. The following are some of the common types of securities claims we commonly see:
- Unsuitable Investments – Brokers and financial advisors are required to due diligence on an investment before recommending it to you. The recommendations must be in line with your investor profile.
- Excessive trading or churning – If your broker is constantly buying and selling in your account, this may be evidence of churning, which means engaging in excessive trading to generate commissions for the broker.
- Unauthorized trading- If your broker makes a trade in your account which you aren’t aware of this constitutes unauthorized trading.
- Selling away – If your advisor solicits you to purchase securities not held or offered by the brokerage firm they are affiliated with, this could be considered “selling away” from the firm.
- Misrepresentations and Omissions – failure to properly disclose the risk of an investment is a misrepresentation or material omission.
The broker must use the standard of care and diligence to protect the customer’s interest. Failure to fulfill that duty may constitute broker negligence or malpractice. Broker negligence may not always involve intentionally fraudulent behavior, such as the following examples.
- Breach of Fiduciary Duty: If your broker fails to act in your best interest, this is considered a breach of fiduciary duty.
- Failure to Conduct Due Diligence: If your broker fails to conduct due diligence on an investment product before recommending it to you, this is broker negligence.
- Failure to Supervise: Brokerage firms are required to supervise their advisors to ensure that they are complying with FINRA rules. If it can be determined that your financial advisor violated FINRA rules and the employers failed to adequately supervise him, these firms can be held responsible for any resulting losses in a FINRA arbitration claim.
- Overconcentration: If your broker fails to diversify your account, it could cause significant investment losses.
- Failure to Execute Trades: Also known as a failure to follow directions, if you direct your broker to sell or buy an investment product and it is not done, this can lead to investment losses, and is broker negliegence.
FINRA Arbitration & Mediation to recover Investment Losses
FINRA 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.
Most large brokerage firms have an arbitration selection clause in their contracts that you may not be aware of, possibly buried in the fine print. You may have signed the contract without realizing it was there. This means the best and possibly the only way to bring a claim against your broker or a broker-dealer firm will be through FINRA arbitration.
FINRA Arbitration is like going to court, but is usually faster, cheaper and less complex than litigation. It is a formal alternative to litigation in which two or more parties select a neutral arbitrator to resolve a dispute.
Mediation can be initiated at any time before arbitration commences and even during an arbitration case before it concludes. It offers a flexible alternative to arbitration. Mediation is an informal process in which a trained, impartial mediator facilitates negotiations between disputing parties, helping them find a mutually acceptable solution. Both parties in a dispute must agree to mediation. FINRA does not require parties to mediate.
How long do I have to file a Claim?
It’s important to file your claim as soon as you can because if the case is not timely filed, the broker gains certain legal defenses that could bar your claim. These defenses are commonly referred to as Statute of Limitations defenses and while FINRA jurisdiction can extend for as long as six years, there are some causes of action as short as one year. Contacting a FINRA lawyer about your claim as early as possible is important.
You may have a better chance of recovering losses if you file sooner, as information and witnesses are more available, and recollection of the events is often better.
Do I need a FINRA Attorney to sue my financial advisor?
It is helpful to have an experienced FINRA attorney to guide you through the process. If you have suffered significant investment losses with your broker or financial advisor, don’t wait to take action. Please call investmentfraudlawyers.com at 1-888-614-9356 for a free consultation with a national FINRA attorney.
Haselkorn & Thibaut is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to representing investors in FINRA arbitration claims against brokerage firms throughout the United States.
InvestmentFraudLawyers.com’s FINRA arbitration attorneys have handled over 700 FINRA arbitration claims involving unauthorized trading, unsuitable investments, fraud, negligence, churning/excessive trading, and improper use of margin.
For information on Haselkorn & Thibaut and its representation of investors in claims against brokerage firms, visit https://investmentfraudlawyers.com/
Can I Sue my Financial Advisor?
If you have suffered losses due to the negligence or misconduct of your financial advisor, you may be able to sue them and recover damages.
Professional financial advisers and brokerage firms owe you a fiduciary duty to put your interests ahead of their own.
This duty is analogous to that which an attorney owes his or her clients. However, not all financial advisors and brokers abide by the rules of FINRA, state, and federal laws.
Fiduciary Duty
Fiduciary duty is a legal obligation that requires people to act in the best interest of others. This includes people who represent a person, such as an attorney or a trustee.
An advisor who adheres to their fiduciary duty is obligated to put your interests before their own and not recommend financial products that benefit them more than you. They should consider your goals, risk tolerance and other factors before making any recommendations to you.
If they fail to do this, it may constitute a breach of fiduciary duty.
A financial advisor who violates this standard of care can face a lawsuit and be held legally liable for any damages you suffer. To succeed in a fiduciary duty claim, you must demonstrate that there was an established fiduciary relationship between the two parties and that the financial professional breached their duty.
Typically, a breach of fiduciary duty occurs when the financial professional benefits from their recommendations, fails to provide proper guidance or acts in any way that is not in your best interests. Generally, the breach can be proven by proving that the financial professional’s actions directly caused you to incur harm.
Negligence
Financial advisors are legally obligated to protect your best interest, and if they breach this duty and cause you financial losses, they may be liable for negligence. This includes breaches of fiduciary duty such as churning your portfolio, and misleading you about investments that may benefit their bottom line.
You must prove that they were negligent by proving all of the following elements: causation, damages, and proportion of fault. This can be difficult and requires the help of a skilled attorney who can investigate your case thoroughly.
Proving negligence usually requires an objective standard called the reasonable person test. This is an objective measurement of how a reasonable person would act in a given situation. It is applied to everyone, regardless of differences in intelligence or life experiences. This is what differentiates ordinary negligence from gross negligence. The latter is more severe and can carry a higher penalty. It also requires a greater degree of proof and expert testimony.
Malpractice
If your financial advisor or a brokerage firm failed to live up to the standard of care expected from those who provide investment advice, you may be entitled to recover your losses. It can be difficult to know whether you have a valid claim, so it is important to contact an experienced securities attorney who can help you decide if your case is worth pursuing.
Malpractice is a form of negligence that is defined as the failure of a professional to follow generally accepted professional standards or to foresee consequences that a competent professional should have foreseen. To prove malpractice, the plaintiff must show that the professional breached a duty to the client and that their failure caused injury or damages.
Financial advisers have a legal and ethical obligation to act in the best interest of their clients, not their own interests. This requires that they follow their client’s instructions regarding what investments to make and that they thoroughly research the investment vehicle they recommend before recommending it.
Fraud
If your financial advisor committed fraud, you can sue for monetary damages. Proving a claim in this situation is difficult, because there are complex laws and regulations governing securities fraud cases.
Fraud can take many forms, including making false insurance claims, cooking the books, and pump-and-dump schemes. It also can include identity theft, credit card fraud, and other crimes that affect the victim’s ability to live a normal life.
The main difference between criminal and civil fraud is that a criminal case requires the prosecution to prove the crime beyond a reasonable doubt. This is a higher standard than for a civil case, and the penalties are harsher.
When clients sue their financial advisors for fraud, they typically do so in a civil trial to recover monetary damages. However, if the defendant commits fraud, the client may also seek a criminal charge.