Making good financial investment decisions often requires specialized knowledge and a considerable investment of time to understand and monitor the ever-changing market options. Over one third of investors in America, about 40 percent, rely on financial advisers to manage their investment portfolios.1
Unfortunately, not all investment advisors act in their clients’ best interests.
When an investor suspects that their investment advisor has caused them financial harm they often wonder if they have any recourse to recover their losses and whether the investment advisor that they believe caused those losses can be sued. You can sue a registered investment advisor but there are some issues involved in doing so.
A registered investment advisor (RIA) is an individual financial advisor or a company that provides its clients with financial advice, has a fiduciary duty to act in the client’s best interest, and is registered with either the Securities and Exchange Commission (SEC) or state securities regulators.2
When investors first sign up with a brokerage firm or registered investment advisor they sign a host of paperwork. In most cases that paperwork includes a predispute arbitration clause which means that by signing the paperwork the investor agrees that if they have a claim for securities fraud or negligence they must bring that claim to an arbitration hearing with the Financial Industry Regulatory Authority (FINRA).
FINRA is a government-authorized not-for-profit organization that oversees U.S. broker-dealers in order to protect investors and ensure the market’s integrity.3 FINRA “operates the largest securities dispute resolution forum in the U.S.”4 Each year, thousands of customers file new arbitration cases with FINRA due to alleged investment advisor negligence and even outright fraud.
FINRA rules say that you only have six years from the occurrence or event giving rise to the claim and the time you make the claim,5 so it is best that if you suspect fraud or negligence you seek legal advice immediately. This is especially important as in some states, such as Florida, the state statute of limitations may be less than six years.
If you have lost money on your investments, that in itself, is not a reason to bring suit against your registered investment advisor.
All investments are subject to risk, including loss of the money you invested. One of the most common reasons for RIAs being sued is negligence in the sale of investment products that are not suitable for the investor or were sold to the investor improperly.
Real Estate Investment Trusts (REITs) are a good example of a product that is often sold to investors who are not adequately informed of the inherent risks of investing in REITs. From potential unexpected tax liability to their historic price fall when the Federal Reserve raises interest rates, REITs have inherent disadvantages.6 Some other common reasons to sue your RIA include unauthorized trading on your behalf; material omission or misrepresentation; lack of diversification; excessive trading to increase commissions; or any other breach of FINRA’s Code of Ethics for financial advisors.7
If you feel you have a lawsuit against a registered investment advisor it is best to seek legal advice as soon as possible. A knowledgeable lawyer will be able to provide expert advice on whether you have grounds for a lawsuit and how to proceed in the event that you do decide to take legal action.
Our Securities Law Firm located in the Detroit area is active in fighting against broker misconduct and for investor’s rights. We have vast experienced in all matters related to FINRA litigation. If you have questions about your investments or the management of your investment accounts, call our Michigan Securities Firm today.
Our securities litigation team has the knowledge and resources to help with your potential case. You will get the representation you need and deserve so your voice is heard. Free Consultations
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1 Why Investors Often Lose When They Sue Their Financial Advisor, by Danielle Kost, 8/12/2020
Link: https://hbswk.hbs.edu/item/why-investors-often-lose-when-they-sue-their-financial-adviser
2What is a Registered Investment Advisor (RIA)? by Kate Ashford, 7/15/2022
Link: https://www.forbes.com/advisor/investing/financial-advisor/ria-registered-investment-advisor/#:
3About FINRA
Link: https://www.finra.org/about
4 FINRA Dispute Resolution Services
Link: https://www.finra.org/arbitration-mediation
5 12000. Code of Arbitration Procedure for Customer Disputes
Link: https://www.finra.org/arbitration-mediation/rules-case-resources/12000#12206.
6 5 Types of REITs and How to Invest in Them by Will Ashworth, 9/2/2022
Link: https://www.investopedia.com/articles/mortgages-real-estate/10/real-estate-investment-trust-reit.asp
7 Prohibited Conduct
Link: https://www.finra.org/investors/learn-to-invest/choosing-investment-professional/prohibited-conduct