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Financial Advisor Negligence: What to Know Before Opening a Claim

When you hire a financial advisor, you expect them to use their expertise and knowledge to create a personalized financial plan that’s just for you. Generally speaking, they should be crafting a plan that checks all of your boxes. Savings, spending, retirement, taxes, and insurance should all be covered.

But what happens when your financial advisor drops the ball? What happens when they fumble that plan and the repercussions land in your lap?

Do you have any recourse in this situation?

The answer is yes and no. Below, we will outline when and why filing a financial advisor negligence claim would be appropriate.

Can You Sue a Financial Advisor for Negligence?

The short answer here is yes, you can sue your financial advisor for negligence if they acted not in your best interest, but in their own. What’s important to mention here, however, is that any funds you lost due to stock market vagaries are probably lost forever, and there is no way to reclaim them — even with a lawsuit. Your financial advisor should have warned you that the stock market is not always secure, and wins and losses are often unpredictable.

With that said, there are SEC regulations and state laws in place that hold investment advisors accountable to fiduciary standards. Mainly, the financial advisor must put your own interests before theirs. If they fail to do this, you have the right to file a malpractice claim for financial advisor negligence against them.

What to Know Before Opening a Claim for Financial Advisor Negligence

It isn’t always clear when a financial advisor has acted illegally.

It can be difficult to determine if your financial advisor has actually acted unethically or done anything against state laws or SEC regulations. However, if you suspect something is or was amiss, this is a good first indicator that something is indeed wrong.

When deciding whether to move forward with a lawsuit, ask yourself a few questions:

  • How long have you been working with your financial advisor?
  • Have you always known them to demonstrate due diligence and care in your financial planning and investments?
  • Have they protected your account with effective risk management strategies?
  • Do you receive regular and frequent communications from your financial advisor?

If your advisor has failed in one or several of these areas, it may be worth speaking to a financial advisor attorney about your legal options regarding a claim.

Different instances of financial advising negligence may warrant a claim.

When a financial advisor fails to put your interests before theirs and does not perform their duties as they are expected to, they may be liable for your financial losses. There are several situations that may result in this outcome, such as:

  • Unauthorized trading
  • Lack of diversification
  • Churning
  • Inappropriate investments
  • A material misrepresentation or omission

There are four things you must prove in order to recoup your losses.

Any lawsuit you file against a financial advisor for negligence will be similar to a standard negligence lawsuit. In this way, you and your lawyer will be required to provide evidence that proves the advisor’s guilt. This means proving the following:

  1. That you hired the advisor in question to take care of your finances — generally including investments, retirement, etc. — and that a fiduciary relationship was created between the two of you.
  2. That the advisor either purposefully or negligently put their own interests ahead of yours and, therefore, breached their fiduciary duties as your advisor.
  3. That you then suffered the consequences of their actions and lost money (you were injured financially).
  4. That the financial advisor’s actions were the cause of your financial losses and you would not have been injured financially had you not hired them.

How Long Do You Have to Make a Claim?

When it comes to making a claim against your financial advisor, it’s important to be cognizant of the statute of limitations laws as well as FINRA (Financial Industry Regulatory Authority) arbitration eligibility. Generally speaking, the statute of limitation laws allow for a maximum of two years after the fraud/negligence should have been noticed and a maximum of five years after the misconduct actually happened. In order to be eligible for FINRA arbitration, most investors have six years to initiate proceedings (based on the original date on which the fraud or misconduct happened).

Juggling all of these dates and organizing a coherent timeline can be confusing, to be sure. This is why we suggest making your move as soon as possible. As soon as you become aware that misconduct or fraud may have taken place with your financial advisor, seek counsel from a financial advisor lawyer.

Schwartz Law Firm Can Help Recover Your Losses

When you hire a financial advisor, you expect them to perform a service for you, and you are paying them to use their expertise and skills to benefit you. If your financial advisor or retirement advisor gave you false or faulty information or recommendations that put their own interests before yours, this is a form of investment fraud, and you have recourse to recoup your losses by filing a claim against them.

At Schwartz Law Firm, we specialize in helping individuals recover losses caused by deceptive financial advisor practices. We are creative, aggressive, and results-oriented.

Want to learn more about filing a claim against a financial advisor? Contact us today to speak with a financial advisor lawyer about your claim.

Matthew Schwartz

Matthew Schwartz is a Shareholder at Schwartz, P.A. where he serves as the practice group leader for their securities litigation and professional negligence practice group. His practice is focused on plaintiff-side securities arbitration and litigation, representing individual investors and institutions in claims against brokerage firms, investment advisors, commodities firms, hedge funds and others. He also represents plaintiffs who have been damaged by their insurance agents, lawyers, accountants and other professionals. He is an accomplished commercial litigator who has handled a variety of business disputes and other consumer claims.

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