Can You Sue Your Broker for Investment Losses?

Savage Villoch Law, PLLC
19
Apr

investment lossDid you know that 32 percent of investors lost money investing in stocks?

You don’t invest to lose money. Unfortunately, it’s inevitable for investment loss to happen sooner or later.

Many times, investment losses might have been caused by recommendations from your broker. If this is the case, why should you get the short end of the deal?

Since you’re here, it means that you want to know if you can sue your broker.

Don’t worry! We have you covered. Keep reading to find out more!

Where to Start?

Before we get into what options you’ve to sue your broker, we need to cover the basics.

So you decided to invest and looked for the right broker or financial advisor who fits your needs. Maybe they outsold themselves because, after all, they’re only human and have bills to pay.

Now you have a hefty tab of investment loss and you’re angry as hell. You trusted this person with your money, maybe even your life savings. To know if you can sue your broker, you first need evidence of their misconduct.

What Did Your Broker Do?

Did they give you bad investment advice? If so, was it based on poor judgment? Did they put their interests before your interests?

Asking yourself questions like these might give you an idea if your broker didn’t do what they were supposed to do. When brokers put their self-interest first, it usually ends up in one of the following:

Excessive Trading

Also known as churning, this is the unethical excessive trading of investments on a client’s account.

The broker focuses on getting their commissions in the bank without thinking about the client.

Many times, it means realizing more capital gains than necessary, and it will translate in your broker’s commission coming out of your pocket.

Using Inappropriate Leverage

Here the investments are bought using borrowed money. This might sound good to the client because they won’t lose money. Yet, the real deal is that this will make you pay double in fees and commissions, ultimately benefiting your broker.

This extra leverage will increase the volatility of your investments. It’s like playing poker but with your investments.

Increased volatility is good if the value of your investments goes up, but deadly if it goes down the drain.

Putting a Client in High-Cost Investments

Most financial advisors who are looking to profit from their clients don’t look at low-cost options. Remember – they just want to get that money in the bank.

Here the broker recommends buying a product with higher fees that don’t fit the client’s investment purpose. These products will end up draining your account while filling up the advisor’s account.

Selling What Clients Want, Not What They Need

This one is a bit trickier. Maybe you heard about this great investment product from your friend. So you discuss it with your advisor during your next meeting.

From their experience and your investment objective, they should’ve recommended against it. But your financial advisor figured it was an easy commission. They told you – let’s go for it!

Now it has been months or even years, and your portfolio is a wreak. You’ve lost a lot of money, and getting out of your investment will be more expensive than you thought. If only you had asked the broker why that investment was a great fit for you!

At this point, it’s clear that your financial advisor did you wrong. You may be thinking – ok then, I can sue no questions asked, right?

Well… It isn’t that easy. Before firing your gun, you’ll have to turn into the Sherlock Holmes of your investment account.

Investigate, Investigate, Investigate

No, we aren’t going overboard. You’ll have to gather clear and concise evidence to be able to sue your advisor. This doesn’t mean some text messages or emails from your advisor.

To conduct a proper investigation that can stand in open court, you have to start with your portfolio. What investments did you own? What happened to those companies?

When you own investments, it’s imperative that you keep track of what’s happening to them. Be it their operations, managers, their quarterly reports, you name it.

We know you pay your investment advisor for their expertise and to tell you when you should sell your investments. But according to the law and most of the disclosures you sign for your investment account, it’s your responsibility to keep track of what you own.

During the investigation, you should analyze your holdings in great detail and calculate accurately your investment loss. This is key during the process because it’s one of the things that will determine if you can sue your advisor.

Now the most important factor will be the customer agreement you signed when you opened the account. It has so many pages that you don’t take the time to read them. In this case, investors surrender their right to sue without even noticing.

The customer agreement may limit your options when it comes to recovering from your investment loss.

But don’t worry if your account disclosures void your right to sue. There are other options available to you, such as:

Suing Your Broker

Not all investors are created equal.

For an everyday investor, it might be difficult to pursue investment loss recovery. Securities fraud cases can be very expensive.

Unless your investment losses are at least $100,000 in a single stock, individual investors are better off joining a class suit. Here they will typically recover between eight to 15 cents for each dollar from the advisor’s misconduct.

To be able to join this class action or file any suit against your financial advisor, you need to prove your ownership of those stocks.

To prove it, you have to submit trade confirmation slips or brokerage statements that confirm your ownership over the period included in the settlement.

Arbitration or Mediation

If you surrendered your right to sue when you signed your customer agreement, you should have the option take your claim to arbitration or mediation.

You can exercise your right by filing an arbitration claim or mediation request through the Financial Industry Regulatory Authority (FINRA) website. Get advice from an attorney before filing to make sure you meet the requirements for the claim.

The FINRA says that, in order to qualify, the investment loss must have happened within the past six years. Also, they recommend you hire an attorney for guidance and advice during the process.

Wrapping It Up

You can sue your broker for investment losses, but only if you didn’t surrender your right when you signed your account agreement. Yet, you shouldn’t worry because you can still recover your losses by using mediation or arbitration.

Have you suffered investment losses? Want to claim them? We can help!

Contact us for more information.