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When to Sue a Financial Advisor

By Christopher Coble, Esq. on April 23, 2018 | Last updated on March 21, 2019

You finally thought you were getting your life together, financially speaking. Paying bills on time, paying down credit card debt, and even trying to set some money aside for retirement. So, you talked to a financial advisor who put together what you thought was a great plan, but now the plan seems to have been to lose all that money you invested.

If your financial advisor screwed up, do you have any legal recourse?

The Bad News

The stock market does have its ups and downs, as your advisor (hopefully) warned you, and there is no guarantee that an investment will pay off. So if you lost money due to the vagaries of the market, there's probably no way of getting it back.

But that may not be the case if your financial advisor acted in their own interest instead of for your benefit.

The Good(?) News

Investment advisors, under state law and SEC regulations, are held to a fiduciary standard, meaning that their actions must be performed for the advantage of the beneficiary, i.e., you. And a new Department of Labor rule extends that duty to retirement advisors as well. Therefore, if you're using a licensed financial advisor, he or she must put your interests before their own.

If your financial advisor fails to adhere to that standard, you may file a malpractice claim, which would look similar to a standard negligence lawsuit. You need to prove that:

  1. A fiduciary relationship was established (that you hired him or her to handle your finances, retirement, and/or investments);
  2. The financial advisor breached that fiduciary duty (that he or she negligently or purposefully put their interests ahead of your own);
  3. You were injured (that you suffered some financial harm); and
  4. The financial advisor's breach is what caused the injury (that you wouldn't have lost money had the advisor not made mistakes).

If your malpractice claim is successful, the financial advisor may need to reimburse you for any losses. And if your advisor purposefully misleads you, makes material misrepresentations about your finances or his or her services, or otherwise misappropriates your funds, you may be able to sue your financial advisor for fraud.

If you have questions about securities law or are thinking of suing your financial advisor, you may want to consult with an experienced consumer protection attorney beforehand.

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