She never explained anything: I’m a senior citizen and I lost $100,000 in the stock market this year. Can I sue my financial advisor?

I am old and have incurred huge losses of $100,000 in the recent stock market turmoil. Can I sue my financial advisor? I understand the market dynamics in terms of its ups and downs, and I let it go before.

However, it was different with the market in this time frame insofar as tech stocks took a big hit, as well as others. My financial advisor advised that I was about to retire months before all of this happened.

Since my account was incurring losses, you 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 losses – and come back at a later time when things settle down.

I’ve now discovered through other advisors I’ve consulted that there is a term called “stop loss” for doing this, stop loss. They also stated that she had failed in her duties as an advisor. You never explain anything, like high or low risk management, or any other aspect of the market.

The only time we contacted her was when I called her about buying into different stocks. Other than that, you have never contacted anything related to my account at any time. Can I file a claim, and if so, how do I do it?

Feeling like a lollipop

Dear FLS,

There are a lot of hurdles you would need to clear up in order to get a legal case to sue your financial advisor, and from what I’ve said here, they don’t seem to have been met. Any investment that has an element of risk and an S&P 500 SPX,
-1.13%And the
Dow Jones Industrial Average DJIA,
-1.01%
and Nasdaq COMP,
-0.95%
They have incurred significant losses this year: declines of 19%, 16% and 27.8%, respectively.

Last year, you were going to be on the back of the pig, and thus I was a huge fan of your financial advisor’s strategy. But there is no perfect advisor. No one can – despite previous predictions – predict the market. Even Warren Buffett, the Oracle of Omaha, makes mistakes. He will recognize them when he does. This applies to your financial advisor – and to your good character.

But back to your question about suing your advisor. You will first need to prove that you have entered into a fiduciary relationship with her. That is, it undertook to put your interests before its own and that it breached its fiduciary duty. You will also have to prove that there is a direct link between her actions and your losses, and show that these losses could have been foreseen.

The Financial Industry Regulatory Authority has rules to help ensure that investors are protected. Read more here. Gibbs Law Group defines the difference between outright fraud, misconduct and negligence, and provides some examples of the latter, including improper investments, failure to disclose important information and excessive concentration of investments.

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

good advisor

A good advisor should understand your circumstances and “recommend only financial products appropriate for your age, investment objectives, experience, and required level of risk,” the law firm writes in a blog post on the subject. “But negligent advisors will sometimes point you toward risky or unsuitable investments to get higher commissions.”

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

You may misunderstand the concept of “stop loss” and how this comes about. This is an order given by an investor, perhaps in consultation with his broker, to sell a stock if it falls to a certain level. But while this can stop the bleeding in your portfolio, it can also cause you to sell a lot of shares at a lower price, without waiting for a potential recovery.

There will be a paper trail, but it doesn’t seem likely that your advisor will be sued for not communicating with you as often as you’d like, even in a turbulent market like this. Sometimes, the best course of action is no action. I lost $100,000. We don’t know if this is 100% or 10% of your total portfolio. In general, as you approach retirement, your investments should be more conservative.

Obviously, if you want to consult a lawyer, you will need to provide more details. However, it appears from your letter that you are upset about the paper losses, and that your advisor is to blame. But regardless of the terms of suing your counsel as outlined above, there are two people in this relationship, and in many cases liability works both ways.

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