Key Takeaways
- Can you sue a financial advisor? You may be able to sue a financial advisor if they caused financial harm through negligence, misconduct, fraud or breach of fiduciary duty.
- When does a lawsuit apply? Claims may arise if an advisor makes unsuitable investment recommendations, misrepresents or omits material risks, fails to disclose conflicts of interest, engages in excessive or unauthorized trading or otherwise mismanages client assets.
- How do these cases work? Many disputes involving financial advisors are resolved through arbitration, particularly when required by account agreements, though some claims may proceed through civil litigation depending on the advisor’s role and governing contracts.
- What is required to pursue a claim? Investors typically must show measurable financial losses, maintain clear documentation of account activity and communications and establish a direct connection between the advisor’s misconduct and the resulting harm.
Trusting a financial advisor with your economic well-being is a significant decision, and most professionals in this field handle their responsibilities with diligence and integrity. However, there are instances when they fail in their obligations, leading to serious financial consequences for their clients through negligence or deliberate misconduct. If you’ve experienced substantial losses in your investment accounts, it’s important to understand your rights and the legal options available to address these wrongs.
At Sonn Law Group, we specialize in helping clients navigate these turbulent waters and ensure you can hold your financial advisor accountable. This article will guide you through initiating a lawsuit or arbitration, identify common grounds for claims and clarify the steps you need to take to seek financial restitution.
By the end of this guide, you’ll have a clear understanding of your legal avenues for recovery and how to proceed if you believe your financial advisor has failed in their duty to you.
Understanding the Grounds for Suing Your Financial Advisor
If your financial advisor has not adhered to the Financial Industry Regulatory Authority (FINRA) rules, guidelines or other regulatory standards, causing financial losses, you may have the right to seek compensation. Under the Investment Advisers Act of 1940, certain investment professionals, including registered investment advisors (RIAs) and some financial advisors, owe fiduciary obligations to their customers.
Breaches of this duty can occur through negligence — such as failing to perform with required competence — or through more direct misconduct like fraud, theft or making unsuitable investment recommendations for personal gain.
Sonn Law Group specializes in evaluating these complex cases to determine the most effective legal path for our clients, ensuring rigorous assessment and pursuit of all viable claims to recover losses and uphold investor rights.
Understanding Arbitration and Legal Actions
When disputes involve financial advisors, individuals have two main avenues for resolution: arbitration through FINRA or pursuing a lawsuit in court. Each option has its specific advantages and considerations.
Arbitration is generally faster and less expensive than court litigation. It is a private process where an impartial arbitrator hears the evidence and makes a binding decision, usually within 12-18 months. The proceedings are confidential, which helps keep sensitive information private, and the process offers flexibility in setting schedules and selecting arbitrators. However, parties are free to disclose information about their own arbitration. And once an arbitration award is issued, it is final, with limited options for appeal.
Litigation, on the other hand, involves resolving disputes in court and is more formal and rigid due to strict procedural rules. While this method can be more costly and time-consuming, it provides a public record of proceedings and the potential for appealing unfavorable decisions, which might influence future cases.
In many cases, investors are not eligible to file a lawsuit against their financial advisor. This is because most investment account agreements contain mandatory arbitration provisions that require disputes to be settled through arbitration instead of litigation. These clauses significantly shape how claims are handled, making it imperative to understand their implications on your ability to sue.
If there is a pre-dispute arbitration clause in the agreement you signed with your advisor, you’ll almost certainly be required to seek compensation through the FINRA arbitration process. The good news is that FINRA arbitration is much like a mini-trial. In many cases, there is an evidentiary hearing, where you have the right to testify, offer fact witnesses and expert testimony, and to cross-examine your financial advisor and their supervisors. If your arbitration claim is successful, you may be issued a FINRA arbitration award that includes financial compensation for the full value of your losses.
While the FINRA arbitration process is somewhat similar to traditional litigation, there are some important differences that only an experienced arbitration lawyer can handle. If you are filing a FINRA arbitration claim against a bad financial advisor, you should work with a qualified and experienced investment fraud attorney who knows the intricacies of FINRA’s arbitration rules, regulations and industry practices.
Experienced attorneys, like those at Sonn Law Group, specialize in navigating both arbitration and litigation processes. They ensure that all procedural requirements are met and aim to secure the best possible outcome for their clients.
Legal Paths When Suing Your Financial Advisor
There is no single legal route that applies to every claim against a financial advisor. The appropriate path depends on several factors, including the advisor’s role, the nature of the alleged misconduct and the agreements governing the investment relationship. Understanding these options can help investors determine how to pursue accountability and potential recovery.
Filing a Civil Lawsuit for Financial Losses
In certain circumstances, investors may pursue a civil lawsuit in court to recover losses caused by a financial advisor’s misconduct. These cases often involve allegations, such as negligence, breach of fiduciary duty or fraud. Civil litigation allows investors to seek monetary damages and may involve formal discovery tools, such as depositions and document subpoenas, to develop evidence.
That said, court litigation is not available in every case. Many advisor-client relationships are governed by agreements that limit or restrict the ability to sue in court.
Arbitration as the Primary Dispute Forum
For most investors, disputes with financial advisors and brokerage firms are resolved through arbitration rather than traditional lawsuits. Arbitration involves presenting evidence and arguments to a neutral panel, which then issues a binding decision. The process is generally faster and more streamlined than court litigation, and it is required in many account agreements.
While arbitration is less formal than court, it still requires a clear presentation of misconduct, damages and causation. The outcome can include financial compensation when claims are proven.
Submitting Regulatory Complaints
Investors may also choose to file complaints with regulatory agencies when a financial advisor violates professional or legal standards. These complaints focus on oversight and discipline rather than direct financial recovery. Regulatory actions can proceed alongside arbitration or litigation, but they typically do not result in compensation for investors.
Using a Multi-Track Legal Strategy
In some cases, pursuing more than one avenue may be appropriate. For example, an investor may pursue arbitration for financial recovery while also submitting a regulatory complaint to address broader misconduct. Whether a multi-track approach makes sense depends on the facts of the case, timing considerations and the investor’s goals.
Choosing the Right Legal Path
Determining the most effective legal strategy requires careful evaluation of the advisor’s obligations, applicable agreements, the nature of the losses and relevant deadlines. Because these issues vary widely, working with an experienced securities attorney can help ensure the chosen path aligns with the investor’s interests and preserves all available options for recovery.
Steps To Take Before Filing a Claim
When considering legal action for investment fraud or disputes with your financial advisor, it’s essential to prepare thoroughly. Here are the steps to ensure you’re ready:
- Document Collection and Review: Start by gathering all relevant financial documents. This includes account statements, trade confirmations, emails and any correspondence with your financial advisor. Also, gather financial records such as bank statements, tax documents or investment prospectuses. These documents can reveal unauthorized transactions, excessive trading and other irregularities that might indicate fraud or negligence.
- Consulting With an Attorney: Consult an experienced securities fraud attorney before proceeding. They’ll thoroughly review your collected documents and assess the strength of your case, focusing on proving that your financial representative committed wrongdoing and demonstrating the link between this misconduct and your financial losses. This evaluation is vital, as most investment fraud claims are highly complex and require a strong, persuasive legal strategy.
- Determining the Best Course of Action: Your lawyer will advise you on the best course of action, whether pursuing FINRA arbitration or court litigation and will outline the potential costs and timeline. Some factors include resolution speed, cost-effectiveness, privacy and the potential for appeal. Additionally, the choice may depend on the specific legal requirements of your case, such as the need for detailed evidence presentation or expert testimonies.
These steps will prepare you for the legal process and better prepare you for a successful outcome.
What To Expect From the Legal Process
Understanding the legal process for securities fraud claims empowers investors to participate in their own defense and ensures they can make informed decisions about their financial recovery. Here’s a streamlined overview of what to expect:
Timeline and Procedures
Arbitration typically resolves within 12-18 months and involves a more straightforward process that includes filing a statement of claim, document exchanges during discovery and a hearing leading to a binding decision. Litigation, however, can often extend for 2 – 4 years or more due to extensive discovery, pre-trial hearings and a formal trial that may lead to lengthy appeals.
Potential Outcomes and Settlements
Successful securities fraud claims can lead to many outcomes, including monetary damages compensating for losses, rescission of fraudulent transactions or other forms of equitable relief such as injunctions. Settlements are common, where parties agree to resolve the dispute without a trial, allowing clients to recover losses more quickly and with fewer expenses.
Costs and Fees
Costs vary based on the chosen legal route. In arbitration, you might face filing fees ranging from $750 – $2,200 and additional costs for arbitrator’s fees, FINRA administrative fees, expert fees, exhibits and graphics expenses, among others. In litigation, expenses can be significantly higher due to the costs of depositions and other costs related to discovery and expert witnesses. Most attorneys handling securities fraud operate on a contingency fee basis, and in some cases, the attorneys will front costs and seek reimbursement if the case is successful.
Regulatory Framework and Investor Protections
Understanding the role and responsibilities of key regulatory bodies is essential for investors seeking to protect their financial interests. Here is what you should know about each and how they provide avenues for recourse in investment fraud:
Role of FINRA and SEC
FINRA is a self-regulatory organization that oversees advisors and their representatives. It sets standards of conduct, examines compliance, investigates violations and takes disciplinary actions. FINRA also provides an arbitration forum for resolving disputes between investors and financial advisors. The Securities and Exchange Commission (SEC), a federal government agency, enforces securities laws, mandates disclosure from public companies and oversees key industry participants. It prosecutes civil enforcement actions against violators of securities laws, enhancing transparency and accountability in the marketplace.
Ethical Standards and Violations
Key regulations like the SEC’s “Best Interests” rule, a.k.a. Reg BI, and FINRA rules of conduct provide the standards of care for investor protection, which ensures financial advisors recommend investments that are in the best interests of the client, and consistent with a client’s objectives, risk tolerance, age, time horizon for investing, tax implications and financial circumstances and needs. The SEC’s anti-fraud provisions also prohibit deceptive practices in securities markets. Investment advisors are also bound by fiduciary duties to place the client’s best interests ahead of their own and to reduce or eliminate conflicts. Violations of these regulations can lead to disciplinary actions, lawsuits and in some cases, criminal charges.
Investor Rights and Legal Recourse
Investors have several recourse options against financial misconduct. They can engage in FINRA arbitration, a private, binding process tailored to resolve disputes quickly. Alternatively, investors can file regulatory complaints with the SEC regarding unethical activities or pursue civil court litigation, such as securities fraud lawsuits. These mechanisms allow investors to seek justice and compensation for financial wrongs.
Frequently Asked Questions (FAQs)
Can I sue my financial advisor for losing my money?
You generally cannot sue a financial advisor simply because an investment lost value due to normal market fluctuations. However, you may have a legal claim if your losses were caused by wrongful conduct such as negligence, misconduct or a breach of fiduciary duty. Claims typically arise when an advisor violates legal or regulatory obligations, and that violation results in financial harm.
What qualifies as financial advisor misconduct?
Financial advisor misconduct can take many forms. Common examples include making unsuitable investment recommendations, failing to disclose material risks or conflicts of interest, misrepresenting investment features or performance, excessive or unnecessary trading and placing the advisor’s interests ahead of the client’s. Whether conduct rises to the level of misconduct depends on the advisor’s duties, the client’s profile and the surrounding facts.
Do financial advisors owe clients a fiduciary duty?
Many financial advisors owe their clients a fiduciary duty, which requires them to act in the client’s best interests rather than their own. This duty generally includes obligations of loyalty, care and full disclosure. When an advisor breaches these obligations — for example, by recommending investments for personal benefit or failing to disclose conflicts — the breach may form the basis of a legal claim.
How long do I have to sue a financial advisor?
Time limits vary depending on the type of claim, applicable state law and whether the dispute is handled through arbitration or litigation. Many claims are subject to strict deadlines, including eligibility rules under arbitration forums and statutes of limitation under state law. Missing a deadline can prevent recovery, which is why prompt review of potential claims is important.
What evidence is needed to sue a financial advisor?
Successful claims are supported by clear documentation. Common forms of evidence include account statements, trade confirmations, advisory agreements, emails or written communications, performance reports and records of recommendations or discussions. In many cases, expert financial analysis is also used to explain losses and demonstrate how the advisor’s conduct departed from required standards.
Contact Sonn Law To Determine if You Can Sue Your Financial Advisor
If you have lost a large amount of money in an investment, you know how awful it feels. It’s stressful, frustrating and, worse, it can be financially ruinous. Sonn Law Group provides a robust representation to seek the full compensation you deserve.
With extensive experience in both FINRA arbitration and court litigation, our team has helped investors recover losses due to financial advisor misconduct for over 36 years. Our attorneys work on a contingency fee basis, meaning we only get paid if we successfully help you recover your losses.
We offer a free, no-strings-attached case evaluation to discuss your legal options and the best path forward. If you suspect misconduct has led to substantial losses in your investments, contact us today for a free consultation.