When can I Sue my Stockbroker or Financial Advisor for Losses?

Mr. Steven Mueller, Managing Partner

Yes, you can sue your stockbroker or financial advisory, but only if their misconduct or negligence caused you financial losses, but most disputes must go through arbitration due to mandatory arbitration clauses in brokerage agreements.

There are four main grounds for a civil claim against your Stockbroker or Financial Advisor. You may have a case if your Stockbroker or Financial Advisor engaged in:

1. A Breach of Fiduciary Duty, where the Stockbroker or Financial Advisor failed to act in your best interest.

   
   

2. Negligence, where the Stockbroker or Financial Advisor did not exercise reasonable care, like recommending unsuitable investments.

   
   

3. Fraud or Misrepresentation, where the Stockbroker or Financial Advisor mislead you or engaging in unauthorized trading or churning, which is excessive trading for commissions.

   
   

4. Failure to Follow Instructions, where your Stockbroker or Financial Advisor ignored your explicit investment directives.

As I stated in the beginning, most brokerage contracts require disputes to be resolved through arbitration rather than court. Arbitration is faster and less costly, but it is binding and has limited appeal options. In rare cases, if the issue falls outside the arbitration clause or you didn’t understand your rights when signing, a lawsuit might be possible.

If you feel you have been wronged or cheated by your Stockbroker or Financial Advisor, the first step is Gather Evidence, which means collect all account statements, all trade confirmations, all emails, and any records showing the misconduct. Next, Review Your Contract you have with the Stockbroker or Financial Advisor, and check for arbitration clauses or dispute resolution terms. Consult with an Industry Professional or Legal Services provider with experience in the investment industry. Last, and if you believe you have a valid claim, submit a complaint to the brokerage firm or advisory firm, and if that does not resolve the situation, begin the arbitration or litigation process.

The general statute of limitations is 4-6 years depending on the violations.

There are challenges in proving Stockbroker or Financial Advisor liability for financial losses. Proving misconduct like unsuitability can be difficult due to its subjective nature. Also, brokerage firms often have significant legal resources, making arbitration against large firms daunting. Lastly, market losses alone aren’t enough; you must show the Stockbroker or Financial Advisor’s actions directly caused your losses.

Finally, the Potential Outcomes of a dispute against your Stockbroker or Financial Advisor could result in your recovery of losses, compensatory damages, legal fees, or punitive damages in cases of fraud. Generally speaking, most cases settle before a final ruling.