Consumer Fraud Forum Blog

Financial & Insurance Fraud, Broker Fraud

Common Investor Malpractice Claims


It’s no surprise that financial advisors have a bad reputation among the wealthy, middle class and poor. Why? Because of malpractice and cases of negligence that have have come to light in recent times.

When you hire a financial advisor, you expect to work with someone who has your family and money at best interest. Sometimes, that’s not the case due to negligence on that financial advisor’s end. And, sometimes it’s negligence on your end by hiring someone who has not had a good track record or is inexperienced.

So, how do you know if your financial advisor is a reputable choice for you? Do your research:

  • Has the financial advisor ever been in an investor claim?
  • Did any of their past clients file a lawsuit for fraud?
  • Do you know anyone who they’ve worked with in the past?
  • Do they have a license number with the state?

If the financial advisor you are looking into using has been involved in a fraud claim, lawsuit or has been in the media for backlash, they aren’t someone you should be working with. If you know anyone who has used them in the past, ask them for a reference check. See how the financial advisor has benefited their family and increased their wealth portfolio. Lastly, if the financial advisor does not have a license within your state, you may want to look elsewhere.

Let’s talk about the three-common investor malpractice claims attorneys see.

Investment ideas are not a fit

With any client to consumer relationship, both parties need to know what is best for them. It’s your financial advisors job to be hired to recommend investment ideas that are going to yield you a better outcome and more money in the long-haul. This means, the financial advisor needs to take your financial measurements to truly understand where your money is coming from, where you can save, how much to invest, and how long.

Without performing a financial measurement of your money, you should not take their recommendations seriously. It’s ok to give push-back on investment ideas that you feel are not a fit for your family. Only proceed with the best options.

If you chose to take an investment deal that ends up declining your moneys value, you may have a claim against your financial advisor.

Investment portfolios have not been diversified

With all investment portfolios, it’s a good practice to have diversity. If you’ve invested all your money into a start-up that tanks after 2 years, you’ve just lost all your savings net. Whereas, if you invested a small portion into that same start up, and it tanks after 2 years, you’re not out all your money. Sticking with this same example, if you had a diverse portfolio and this one area tanks, other investments may be profitable enough to make up for the loss. That means you’re still breaking even!

Often hard to switch or sell investments

If you’ve invested in an illiquid investment with the recommendation of your financial advisor, it’s likely your financial advisor make a large commission on the sale and used that commission as a basis for the recommendation.

An illiquid investment means there is not a strong public market and potential buyers are not easy to find. Common investments considered illiquid are:

  • Variable annuities
  • Private placements
  • Oil and gas partnerships
  • BDC’s
  • Non-traded REITs
  • Equity-indexed annuities

In conclusion, if you’ve had a financial advisor recommend any of the products listed in this article, you may be able to sue for malpractice or negligence. Speak with an attorney to see what options you have. They’ll give you a thorough case review and will be honest in your next steps.

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