"She never explained anything": I am an elderly person and I lost $100,000 on the stock market this year.  Can I sue my financial advisor?

“She never explained anything”: I am an elderly person and I lost $100,000 on the stock market this year. Can I sue my financial advisor?

I am a senior citizen and I suffered significant losses in the range of $100,000 during the recent stock market turmoil. Can I sue my financial advisor? I understand the dynamics of the market in terms of its ups and downs, and I’ve weathered them before.

However, it has been different with the market over this period as tech stocks are taking a hit, along with others. I informed my financial advisor that I was going to retire months before all of this happened.

As my account was experiencing losses, she did nothing to warn me that given the current situation, it might be a good idea to move my assets to another area to reduce the losses – and return at a later date when things will have stabilized.

I am now learning from other advisors I have consulted that there is a term called “stop loss” for doing just that, stop loss. They also mentioned that she failed in her duties as an advisor. She never explained anything, like high or low risk management, or any other aspect of the market.

The only time we had contact was when I contacted her to buy different stocks. Other than that, she never called about anything regarding my account at any time. Can I file a complaint and, if so, how should I proceed?

Feel like a sucker

Dear FLS,

There are a lot of hurdles to jump through in order to sue your financial adviser and from what you have said here it does not appear that they have been encountered. All investing involves an element of risk and the S&P 500 SPX,
-1.13%,
Dow Jones DJIA Industrial Average,
-1.01%
and Nasdaq COMP,
-0.95%
suffered significant losses this year: down 19%, 16% and 27.8% respectively.

Last year, you would have been on the back of the pig, and therefore a big fan of your financial advisor’s strategy. But no advisor is perfect. And no one – despite previous predictions – can predict the market. Even Warren Buffett, the Oracle of Omaha, makes mistakes. And he will recognize them when he does. This applies to your financial advisor – and your good self.

But back to your question of suing your advisor. You will first need to prove that you entered into a fiduciary relationship with her. That is, she agreed to put your interests ahead of her own and breached her fiduciary duty. You will also need to prove a direct link between his actions and your losses, and demonstrate that those losses could have been foreseen.

The Financial Sector Regulatory Authority has rules to help ensure investor protection. Learn more here. The Gibbs Law Group clarifies the difference between outright fraud, misconduct, and negligence, and gives some examples of the latter, including improper investments, failure to disclose material information, and overconcentration of investments.

Still, don’t expect your day in court. Most investment contracts include an arbitration clause. Finra and the Securities Industry and Financial Markets Association (Sifma), a trade group representing securities firms, banks and asset managers, argue that arbitration saves time and money for all parties. and helps facilitate small claims from retail investors.

A good adviser

A good adviser should understand your situation “and only recommend financial products that are appropriate for your age, your investment objectives, your experience and the desired level of risk”, writes the law firm in a blog on the subject. “But careless advisors will sometimes steer you into risky or unsuitable investments to get higher commissions.”

Diversity helps protect investors from excessive losses, but does not prevent them. “Investment over-concentration occurs when a financial or investment adviser fails to diversify a client’s portfolio, subjecting that client to excessive risk of loss,” he adds. Your losses can be across a wide range of stocks, as the overall market plunged in 2022.

You may misunderstand the concept of a “stop loss” and how such an order occurs. It is an order given by the investor, perhaps in consultation with their broker, to sell a stock if it falls below a certain level. But while it may stop the bleeding in your portfolio, it could also cause you to sell too many stocks at a lower price, without waiting for a potential rebound.

There will be a paper trail, but it seems unlikely that your adviser could be sued for not contacting you as often as you would like, even in a turbulent market like this. Sometimes the best action is no action. You have lost $100,000. We don’t know if it’s 100% or 10% of your overall portfolio. As a general rule, as you approach retirement, your investments should be more conservative.

Obviously, if you were to consult a lawyer, you would need to present more details. From your letter, however, it appears that you are upset about your paper losses and that your advisor takes responsibility for them. But notwithstanding the conditions for suing your adviser as stated above, there are two people in this relationship, and in many cases the liability works both ways.

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