Financial Advisor
Halt | July 31, 2021 | 0 Comments

How To Sue Your Financial Advisor?

Have you lost money in your brokerage account or investment? Thinking of suing your financial advisor? Here’s how to do it!

You do not have the right to sue your broker only because you lost the money in your brokerage account. Moreover, you must have a valid legal claim. Brokers and financial advisors can face a variety of claims or causes of action in their professional capacity. Theft and fraud are the most severe kinds of claims against brokers.

Generally, irresponsible brokers place an investor’s money into risky, unwise, or unsuitable investments. Lawyers can represent victims (investors in this case) in a wide range of investment fraud or broker negligence cases.

How Can You Sue Your Financial Advisor?

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Investing in stocks and securities is the quickest and most reliable method to increase your wealth. Putting your wealth in a savings account with a near-zero return rate is impractical, even if it is risk-free. By investing wisely in securities, you may safeguard your retirement fund, save for education, or a contingency fund.

Investing in assets such as stocks, options, bonds, and other investments can be confusing and complicated for the average investor. Thus, obtaining the guidance of a financial advisor to lead you toward the appropriate investments is an intelligent decision. You can avoid such a complicated situation by investing in 5G penny stocks.

However, if the advisor’s recommendations result in a loss, you can sue your financial advisor for certain circumstances.

Here are a few of the most common situations where you can put legal claims on the brokers.

Conflict Of Interest

According to the Regulation Best Interest (BI) Rule, any broker or investment adviser is required to act in your best interests. The Regulation Best Interest regulation is based on fiduciary duty principles.

According to the Securities and Exchange Commission (SEC) rule for Regulation Best Interest (BI) in 2019 is, “it requires broker-dealers to only recommend financial products to their customers that are in their customers’ best interests, and to clearly identify any potential conflicts of interest and financial incentives the broker-dealer may have for the sale of those products.” Investment fraud lawyers like Klayman Toskes deal first-hand with financial advisor conflict of interest lawsuits.

Breach Of Fiduciary Duty

A financial advisor’s fiduciary duties to their customers are:

  • Recommending a stock only after sufficient research has been conducted to determine its nature, price, and financial outlook.
  • Handling orders promptly and most favorably to the customer’s interests.
  • Notifying the customer of the risks associated with purchasing or selling particular securities.
  • Avoid self-dealing.
  • Avoid misinterpreting material facts of the transaction, and
  • Only do transactions after proper authorization from the customer.

Unsuitable Investments

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Brokers are only permitted to recommend securities that suit their client’s unique investment profile. According to the Financial Industry Regulatory Authority (FINRA’s) Suitability Rule, a customer’s investment profile “includes, but is not limited to, his or her age, previous investments, financial position and needs, tax status, investment goals, investment time horizon, investment experience, liquidity requirements, and risk tolerance.”

Omissions Or Material Misrepresentations

Brokers are responsible for providing their customers with complete, accurate, and honest statements. In this case, misrepresentation refers to your broker making a misleading or inaccurate statement regarding a critical aspect of an investment. A claim for omission arises when your broker fails to properly reveal any feature or risk associated with an investment that might affect your investing choice.


Concentration is another term for a “lack of diversity.” It indicates that the broker invested an excessive percentage of your account in a single investment, one type of investment, a single industrial sector, or a single geographical region. Concentration can lead to losing your entire investment if a single industry or type of investment suffers a downturn.

Excessive Trading

This claim (sometimes referred to as churning) happens when a broker frequently buys securities in a customer account to generate commissions. It can also happen with any kind of asset, including bonds, stocks, and annuities, which is called twisting. Because some assets, such as bonds, are often intended to be kept for a more extended period, the concept of excessive trading in bonds is different than in stocks.

Trading Without Proper Authorization

A broker must obtain express authorization to trade in the account. It means that the client must agree on the security, the number of shares, and the share price. A broker must get written approval from the client to execute a transaction on a discretionary basis.

Investors cannot hold brokers responsible for damages only because they lost money under state and federal securities laws, as well as FINRA rules.

Before an investor can file a claim, they must prove that their financial advisor committed fraud, behaved negligently, and directly linked the negligence or fraud and the investor’s losses.

Filing an investment fraud lawsuit is a complicated process. However, a skilled attorney can present critical facts to build a convincing, persuasive legal case.

Now that you know the situations in which you can sue a financial advisor or stockbroker, let us know what FINRA is.

What Is FINRA?

The Financial Industry Regulatory Authority, or in short FINRA, is a non-governmental, independent organization. It enforces rules and regulations governing authorized brokers and broker-dealer companies in the United States. Its goal is to “protect the potential investors against fraud and unethical behavior.” It is seen as a self-regulatory organization.

FINRA was formed in 2007 due to the merging of the National Association of Securities Dealers (NASD) and the New York Stock Exchange’s (NYSE) member regulatory, enforcement, and arbitration activities. Consolidation was intended to eliminate overlapping or redundant regulation as well as simplify and decrease the complexity and the cost of compliance.

As of 2019, FINRA regulates approximately 3,500 brokerage companies, 154,000 branch locations, and over 625,000 registered securities representatives. In addition, FINRA supervises the trading of stocks, corporate bonds, futures, and options on securities.

FINRA has the authority to ban or fine brokers and brokerage companies that violate its rules and regulations.

Besides supervising securities companies and their brokers, FINRA conducts the qualifying examinations required of securities professionals before selling securities or managing those who do. These include the Series 3 National Commodity Futures Examination and the Series 7 General Securities Representative Qualification Examination.

FINRA’s Ethical Principles

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Additionally, FINRA offers an ethical code for financial advisors who are members. FINRA’s rules are aimed at protecting investors from fraud, overreach, undue influence, and deceptive tactics. The following behavior is prohibited under FINRA rules:

  • Recommending an inappropriate investment for an investor based on the investor’s age, financial position, investing experience, and financial plan.
  • Purchasing or selling shares without the investor’s permission or formal authorization to do so.
  • Switching clients between mutual funds on an ad-hoc basis.
  • Materially misrepresenting or omitting to disclose material information about a suggested investment.
  • Unauthorized withdrawal of shares, securities, or money from an investor’s account.
  • Excessive commissions, surcharges, or markdowns on the purchase and sale of securities.
  • Assuring the investor that securities will not decline in value or reach a specific price or consent to a loss-sharing agreement.
  • Engaging in private sales of securities to an investor without the financial institution or brokerage firm’s permission.
  • Ordering securities from the brokerage firm’s account before placing a customer limit order is sometimes referred to as trading ahead.
  • Omitting to publish customer limit orders.
  • Failure to use due diligence and ensuring that the client got the best price possible at the moment of purchase or sale.
  • Purchasing or selling securities based on insider and non-public knowledge.
  • Using manipulation, deceit, or fraud to persuade or complete a transaction.

Despite these protections, individual investors can lose money due to unethical, dishonest, or incompetent financial advisors.

Registered financial advisors offer their customers a fiduciary duty. The obligation is analogous to that which an attorney owes a client. Not all financial advisors or brokerage companies owe their customers the same legal obligations. If your financial advisor is a registered investment broker, you should contact an investment loss recovery lawyer for assistance.

Filing Lawsuit

If your brokerage agreement does not include a binding arbitration clause, you will have the option of filing a case to court. However, courts can sometimes be very sluggish. Also, courts require strict adherence to every procedural rule, which contributes to the duration of the case. However, you may have the right to request that a jury review your case.

A jury formed of community members may empathize with an individual investor over a hegemonic investing firm. However, as any experienced lawyer who has handled cases previously can testify, predicting what a jury will do is really difficult.

You must have an honest conversation with an investment loss recovery attorney regarding the advantages of pursuing your case or submitting it to arbitration.


Financial damages lawsuits are not for the faint-hearted, but they may prove profitable in the long run. Make sure you thoroughly consider your options before you put a legal claim. And keep in mind that you are unlikely to get honest advice from a lawyer who is eager to sell litigations.

The sad truth is that litigation is an investment in itself with its own set of benefits and risks. There are significant costs associated with this, including non-financial. All of these factors must be considered before making a sensible decision. In certain situations, it is preferable to bear the losses.

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