What happens if a financial advisor loses your money?
The short answer is yes—if your financial advisor has acted negligently or fraudulently, then it may be possible to sue them for damages resulting from their advice or actions. Advisors are held at a high standard, so any breach of trust or duty can be grounds for a lawsuit.
In theory, if you have lost money because your broker (or any financial institution) gave you bad advice, mismanaged your investments, misled you, or took other unlawful or unethical actions, you can sue for damages. If these breaches of duty are provable, the "merits of the case" are strong, as a lawyer would say.
In this situation, you may pursue damages for theft through the Financial Industry Regulatory Authority (FINRA) arbitration. A lawyer can help you handle this process to secure damages for your financial losses.
If you have received bad financial advice, you should start by making a formal complaint with your financial adviser and their company.
If your financial advisor has been misleading about certain financial instruments, has improperly executed trades, has overcharged in fees, has placed you in unsuitable investments, or has been negligent in managing your finances, you may file a claim and recover losses.
The short answer is yes—if your financial advisor has acted negligently or fraudulently, then it may be possible to sue them for damages resulting from their advice or actions. Advisors are held at a high standard, so any breach of trust or duty can be grounds for a lawsuit.
While most advisors rely on third-party custodians to safeguard their clients' assets, registered advisors may also technically be qualified custodians themselves. The rule also requires qualified custodians to send account statements to clients, at least quarterly.
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.
An advisor who believes in having a long-term relationship with you—and not merely a series of commission-generating transactions—can be considered trustworthy. Ask for referrals and then run a background check on the advisors that you narrow down such as from FINRA's free BrokerCheck service.
Research Your Advisor
If the advisor has any designations, such as the CFP® certification, look them up through those organizations to research any disciplinary action. Run a quick web search through your favorite search engine, and include the advisor's name and “scam,” “theft,” or any other relevant terms.
What financial advisors don t tell you?
- "I offer a guaranteed rate of return."
- "Performance is the only thing that matters."
- "This investment product is risk-free. ...
- "Don't worry about how you're invested. ...
- "I know my pay structure is confusing; just trust me that it's fair."
This means that they must be reasonably careful when dealing with clients. 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.
It might come as a surprise, but your financial professional—whether they're a banker, planner or advisor—wants to know more about you than how much money you can invest. They can best help you achieve your goals when they know more about your job, your family and your passions.
Investment advisors cannot guarantee the outcome of an investment since the financial markets can be impacted by many different factors. However, advisors can reference historic data and research to support their investment selection.
Significant loss threats include advisor death or disability, key person loss, an unexpected disaster (natural or otherwise), lawsuits, and failure to plan for business succession. Best practices include insurance and continuity plans to protect those assets you cannot afford to lose.
Poor Communication: One of the primary reasons people fire their financial advisors is a lack of communication.
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.
In most cases, you simply have to send a signed letter to your advisor to terminate the contract. In some instances, you may have to pay a termination fee.
Federal securities law prohibits financial advisors from stealing your money. In some cases, brokers may also misappropriate funds by transferring them from client's accounts or to shell companies or accounts that they control.
Financial advisors can help individuals and companies reach their financial goals sooner by providing their clients with strategies and ways to create more wealth, reduce costs, or eliminate debts.
At what net worth should I get a financial advisor?
Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.
A disadvantage of a fiduciary is that fiduciary advisors are often more expensive than non-fiduciary advisors as they charge higher market rates.
Poor performance, high fees, strained communication and stagnant advice are among the reasons to look for a new advisor. Kevin Voigt is a former staff writer for NerdWallet covering investing.
Common red flags include large cash transactions, structuring transactions to avoid reporting thresholds, rapid movement of funds, unusual customer activity, lack of business justification, dealing with non-resident customers or Politically Exposed Persons, offshore transactions, unregistered or unlicensed entities, ...
Large transactions, structuring, layering property transactions, the use of anonymous entities, and unexplained wealth increases are five common AML red flags for money laundering. Businesses should have an adequate AML policy to detect and address suspicious activity and currency transactions.
