Question: My investment adviser or broker has recommended stocks and mutual funds that have taken a real beating during this recent market downturn. I know I agreed to these purchases, but I feel like I was going along with his experience and knowledge. Is there anything I can do to recoup my losses?
Answer: Yes, under certain circumstances. Financial advisers are required to know their clients and to recommend investments that are appropriate for each individual investor. For example, if someone is close to retirement or is already retired, the adviser should not recommend that a large portion of this person’s retirement portfolio be in the stock market, where it is vulnerable to significant losses. Likewise, if you have indicated that you are a conservative investor, the type of investments should be less risky. In general, if the downside risk of an investment is large, even though it may have a large potential upside, it’s not appropriate for the retirement fund of someone who is close to or in retirement. If you lost money because your investment adviser did not recommend investments that were appropriate for you, you may have a remedy.
Q: What level of involvement should you expect from your financial adviser?
A: Your case is stronger if the financial adviser has not been an active partner in helping you manage your investments. The financial adviser is expected to keep track of the changes in your life and recommend investments appropriate for you. At the very least, he/she should have an annual face-to-face meeting with you to discuss your goals and needs. As a practical matter, if your broker or investment adviser hasn’t taken the initiative, you should plan a meeting with him or her. Prepare by reviewing your "customer profile," which will often be found in your account application or your account agreement, but it may also be a separate document. If you do not have copies of these documents in your files, you should contact your broker and request copies.
Q: What kind of personal information does a financial adviser typically need?
A: Your customer profile contains information about your finances and preferences, which the broker is entrusted to use as a guide in making recommendations. That information includes your net worth, your annual income, your tolerance for taking risks, your investment horizon or time frame (how long before you will need to cash in your investment) and your investment objectives. Investment objectives normally range from "Income" and "Conservative," "Growth," to "Trading" and "Speculation." All of these will change over time. If you have not had your customer profile updated in the last five years, or if you recently had, or expect to have, a significant change in your circumstances (such as a pending retirement, change of employment or inheritance), it is important to meet with your broker to ensure that he or she is aware of your current situation and needs.
Q: How often should a financial adviser update your personal information?
A: If your broker hasn’t updated your profile in the last five years or periodically met with you to discuss your needs, he or she may have breached the standard of service expected of financial advisers. In most cases your account agreement will have a clause that requires you to raise your claims in an arbitration which will be handled by the Financial Industry Regulatory Authority, or FINRA.
Q: I do not feel comfortable trying to represent myself, and I do not have the money to pay an attorney. Are there attorneys who are willing to handle my case on a contingency fee basis?
A: Yes. A good source of referrals for these types of cases is the Public Investors Arbitration Bar Association. This is an organization of attorneys who represent individual investors in arbitration against brokers and financial advisers, and who are familiar with the procedures used in FINRA arbitration. You can obtain a list of attorneys in your area who are members of PIABA by visiting their website, www.piaba.org.
