Advisor Negligence (2024)

FAQs

What is negligence in financial advisors? ›

Financial advisor negligence occurs when an advisor breaches this duty by doing (or not doing) something that a reasonably prudent financial advisor would do under similar circ*mstances. Negligence can occur when an advisor recommends unsuitable investments or fails to diversify a portfolio.

State and federal laws mandate that financial advisors and stockbrokers have a duty to act in the investor's best interest. If an investor suffers losses due to malpractice, they have the right to be compensated.

The duty of care is what underlies an adviser's obligation to act with prudence and reasonableness, while the duty of loyalty is what underlies an adviser's obligation not to subrogate clients' interests to the adviser's own interests.

Your investment advisor or broker should have discussed your goals and risk tolerance with you before investing any of your money. If they recommended riskier investments than were appropriate for you and you lost money, you may have a claim. If your losses were substantial, there is no time to waste.

The Four Elements of Negligence Are Duty, Breach of Duty, Damages, and Causation.

Negligence is: A general term that denotes conduct lacking in due care; Carelessness; and. A deviation from the standard of care that a reasonable person would use in a particular set of circ*mstances.

However, there are other less obvious guidelines you must adhere to so you can avoid getting sued as a financial advisor. In 2022, the Financial Industry Regulatory Authority (FINRA) received 11,180 investor complaints—less than the 14,311 received in 2021 but far greater than the 5,400 received in 2020.

If you suspect something is wrong or you're receiving bad advice from an advisor, it's your responsibility to speak up. Keep in mind that experiencing losses in the stock market isn't a valid reason to complain to an advisor. Investing inherently carries risk, so no advisor can guarantee a risk-free portfolio.

For instance, you might file a complaint with the advisor's firm, the Financial Industry Regulatory Authority (FINRA), state or federal authorities, or with any professional organizations the advisor belongs to, or all of the above.

A fiduciary duty is the legal obligation of one party to prioritize the interests of others. This relationship is between the principal (you, the client) and the fiduciary, such as a registered investment advisor (RIA). This is regulated by the SEC and is defined by the duties of loyalty and care.

What is your responsibility as an advisor? ›

The Role of the Advisor

Intervene in conflicts between group members and/or officers when necessary. Be knowledgeable of policies that may impact the organization's decisions, programs, etc. Provide continuity and stability as student leadership changes. Provide an outside view or perspective.

Red Flag #1: They're not a fiduciary.

You be surprised to learn that not all financial advisors act in their clients' best interest. In fact, only financial advisors that hold themselves to a fiduciary standard of care must legally put your interests ahead of theirs.

While most financial advisors may not be personally responsible for financial liability arising from a negligence claim (since it is usually the employer's E&O policy that ultimately pays the claim), there is still the potential for significant consequences for advisors who don't exercise due care in advising clients.

If a financial advisor steals your money, you may work with a lawyer to secure funds to replace the money the advisor took. You may also seek funds to cover the cost of your legal fees in some situations. Our team has extensive experience helping clients after acts of investment misconduct.

Negligence Vs Fiduciary Duty Of Care

Whether a legal claim is due to negligence or a breach of fiduciary duty can be confusing to the average person. Their elements are similar, but negligence can exist outside of a fiduciary obligation, and mere negligence does not necessarily constitute a breach of fiduciary duty.

For example, a driver who has an accident while speeding on a highway might be found liable for ordinary negligence, but a driver who hits a child while speeding through a school zone is acting with a reckless disregard that could form the basis for a finding of gross negligence.

Suing financial advisors is never a step taken lightly. However, financial advisor negligence, churning, unsuitable investment advice, and other similar acts are all grounds to file a FINRA complaint and sue your financial advisor.