Can I Sue My Financial Advisor or Stock Broker for Investment Losses?

Yes, if you can prove that your financial advisor or stockbroker violated law or breached his or her fiduciary duty to you and you lost money as a result.  You may also be able to recover losses from the firm that employs your financial advisor or broker.

Contact Astanehe Law for your free consultation today!

What Claims Do I Have Against My Stock Broker?

You can sue your broker if they:

  1. Engaged in manipulative or fraudulent conduct, including misrepresentations and omissions;
  2. Engaged in careless or negligent conduct;
  3. Recommended complex, inappropriate, or risky investment products or strategies;
  4. Engaged in excessive trading;
  5. Executed in unauthorized trades or committed order failure;
  6. Failed to disclose a conflict of interest;
  7. Engaged in high pressure sales tactics;
  8. Executing transactions for his or her own account before executing transactions for your account;
  9. Engaged in certain careless or reckless activity related to margin trading;
  10. Failed to properly disclose investment risk; or,
  11. Is involved in a FINRA or SEC investigation.

When Can I Sue My Financial Advisor?

You are able to sue your financial advisor for several of the same reasons listed above.

Can I Sue My Stock Broker for Maintaining an Unsuitable or Inappropriate Portfolio?

Your broker may not recommend a security unless reasons to believe the security is suitable to your financial situation.  Many investors often lose money due to the security recommendations or the investment strategy recommended by the financial professional.  Because these cases are not easy for the investor to spot, many such claims are never filed.  Here are four common indications that your broker may have engaged in inappropriate or unsuitable investments with your account:

  1. The broker or advisor never bothered to learn your essential facts: Your broker is required to learn your essential facts, including your investing experience, investment goals, biographical information, net worth, education level, and risk tolerance. After obtaining the information, your broker or advisor is required to recommend investments that are suitable or appropriate for you.  For example, a broker who recommends a complex or risky product, such as recommending digital currency, to an investor lacking prior investment experience violates this duty. Additionally, a stock broker selling a long-term and speculative investment to an elderly investor violates this duty. Both investors could have a claim against their financial professionals.  For help with an inappropriate or risky investment, contact Astanehe Law today!
  2. Your broker must maintain a diversified portfolio: A diversified portfolio mixes a large variety of investments within a portfolio, which minimizes a loss in any particular investment by the gains in others.  Diversification reduces portfolio volatility as a single investment cannot cause significant harm to the portfolio and ensures exposure to a well-performing sector.  A broker’s failure to diversify is a form of unsuitable practice and may be a risky or inappropriate investment strategy.  Maintaining a diversified portfolio is the industry standard, so there is no excuse for failure to diversify.  Consequently, the failure to diversify may give rise to a claim against your broker or advisor.
  3. Your broker failed to adequately disclose the heightened risks of margin trading: Margin trading occurs when the investor borrows money from a broker to purchase stock. The broker loans money to the investor, which allows the investor to purchase a greater amount of stock. Margin trading is extremely risky and not suitable for all investors.  For this reason, the broker is required give the investor a margin disclosure statement upon the creation of a margin account.  A broker’s failure to inform the investor about the high-risk nature of margin trading can result in liability for losses as a result.
  4. Your broker recommended frequent switching of mutual funds: Mutual funds are typically long term investments and they are not meant to be traded like stocks. Therefore, switching mutual funds is rare.  Switching refers to the process of transferring investments.  Often there are numerous costs involved with switching. Switching among mutual funds may be inappropriate where no legitimate investment purpose exists and the switching may have generated commission or increased the investor’s tax liability. 

Can I sue my broker for making excessive trading or unauthorized trades?

Excessive trading, also known as churning, occurs when a broker executes transactions for the purpose of generating commissions.  Engaging in excessive trading allows the broker to not only unjustifiably gain from the transaction cost, but also your loss.  Although often hard to detect, a large volume of trading without a legitimate explanation indicates likely excessive trading.  Let one of our experienced attorneys assist you in determining whether your broker engaged in excessive trading.

Similarly, in certain investment accounts, your broker is not permitted to execute trades you did not authorize.  If you have made it clear that you prefer to be apprised of your portfolio’s day-to-day status, you have likely requested that your broker obtain your permission before executing each transaction.  A broker who purchases or sells stock without obtaining customer authorization may violate the industry rules and laws that prohibit unauthorized trading.

What if my broker or advisor managed my portfolio while having a conflict of interest?

It is improper for your broker or advisor to recommend a security or engage in trading without full disclosure of any conflicts of interest.  Your broker or advisor must institute protocols to prevent conflicts from ever arising, and should they arise, your broker or dealer must disclose the conflicts to you.

Some of the most common types of conflicts include that the broker or advisor will receive compensation for making a particular recommendation, the broker or advisor entered into a revenue sharing agreement with a mutual fund, and that the firm’s research reports failed to disclose a conflict of interest.

What can I do if my broker or advisor failed to provide me with adequate risk disclosure?

Your broker or adviser has a duty to disclose all material information to you.  Information that a client considers important in deciding whether to invest is deemed material.  Known risk factors, negative information about the investment, conflicts of interest, transactional charges, the availability of similar investments, and information regard a company’s financial condition are commonly considered material information.  You may have a claim against your broker or advisor if they have failed to disclose material information before making a decision to purchase or sale a security.

Is my broker permitted to execute trades for his or her own account before executing my account?

No, brokers are prohibited from trading ahead of their customer’s limit orders.  This practice is manipulative and inconsistent with your broker’s duty to engage in just and equitable conduct.

Can I sue my broker and brokerage firm for high pressure sales tactics?

Yes, brokers and brokerage firms are prohibited from engaging in high pressure sales tactics, such as cold calling non-customers, inflating past performance, encouraging investors to transact blindly, and making promises of a guaranteed return. These practices may violate antifraud laws and give rise to a claim against the broker and brokerage firm. Contact an attorney today to find out if you have a claim. 

What can I do if my broker or their firm is under a FINRA or SEC investigation?

Depending on the matter under investigation, you may have a claim against your broker or firm under FINRA or SEC investigation.  Click here to find out if your firm or broker is currently subject to a FINRA investigation.  Click here to find out if your firm or broker is currently subject to a SEC investigation.  Let Astanehe Law help you pursue your potential claim against your stock broker today!