How To Sue Your Financial Advisor
It is possible to sue your financial advisor if you feel that you have been wronged or unfairly treated by that individual or an advisory firm. However, the “lawsuit” that you would initiate in order to seek redress from an injury caused by the action or inaction of an individual broker or brokerage is not one that you would file at your local courthouse.
Instead, it is a claims process initiated with the Financial Industry Regulatory Authority (“FINRA”). The claim is arbitrated within FINRA, according to that organizations internal rules and processes.
A broker or brokerage firm found to have treated you unfairly by FINRA will be subjected to disciplinary action. These actions include fines, suspensions from licensure, or a complete barring from the security industry, among other measures.
First, let’s discuss some concepts basic to the understanding of when and how to sue your financial advisor.
Understanding the Process for Suing Your Financial Advisors
What Is FINRA?
FINRA is a regulatory organization charged with the oversight of broker-dealer firms, individual brokers, and dealings within the US securities market.
It is empowered by the US Securities and Exchange Commission (SEC) to draft, implement, advertise, and enforce rules for the actions that financial advisors, brokers, and brokerage forms take when acting on behalf of members of the public.
In particular, FINRA regulates:
- Broker-Dealer Firms
- Capital Acquisition Brokers
- Funding Portals
FINRA also regulates the individual employees of these types of firms.
Broker-dealer firms are those individuals or entities that buy and sell securities for themselves and on behalf of customers.
These firms include stock brokerages and can act as both agents (for you) and principals (for themselves).
What Can You Sue your Financial Advisor for?
FINRA prohibits various types of conduct that may be undertaken by the above entities or their employees. Here are some examples:
- Recommending a securities transaction or investment plan that is not in the best interest of the customer;
- Purchasing or selling securities without informing a customer or receiving the customer’s authorization;
- Switching a customer’s from one mutual fund to another without any legitimate investment purpose;
- Failing to disclose materials facts regarding investments;
- Removing funds or securities from an account with a customer’s permission;
- Charging excessive markup or markdown fees or commissions;
- Guaranteeing to a customer that a particular transaction will not result in a loss;
- Other private securities transactions in violation of FINRA rules;
- Placing orders for a firm’s account before entering a customer’s limit order (“trading ahead”);
- Failing to display a customer limit order in published quotes;
- Failing to exercise due diligence in ensuring that a transaction is entered into with the best possible terms for a customer;
- Purchasing or selling securities with non-public information about the issuer;
- Engaging in other manipulative, deceptive, or fraudulent methods to engage in a transaction or induce the purchase or sale of securities.
- Breach of the contractual terms of your customer agreement with a broker;
- Negligence in failing to manage your account in a reasonable manner;
- Use of high-pressure sales tactics;
- Breaches of fiduciary duty, placing the broker’s interests over your own;
- And more.
You cannot sue a financial advisor simply because your investment loses value, notably.
If you have an issue with a mutual fund, transfer agent, or public company, a complaint filed with the SEC may be an alternative route for redressing your grievance.
What Are the Benefits of the Suing a Financial Advisor?
When considering suing your financial advisor by filing a claim with FINRA, it is worth remembering that FINRA’s purpose is regulatory. That is, the agency’s purpose is to ensure that regulated entities and individuals in the securities industry act in conformity with its rules and regulations.
It is not a court of law, in other words.
FINRA does not guarantee that a finding against a firm or individual broker will result in either a payment or a return of an investment or security to you.
However, awards for damages, costs, and attorneys’ fees have been awarded by FINRA, and sometimes in sizeable amounts.
If you are seeking an award of money damages, your odds of success will be maximized by retaining an attorney experienced with the FINRA complaint and arbitration process.
What Is FINRA Arbitration and How Does It Work?
There are a number of steps in the FINRA complaint and arbitration process.
However, the first thing to bear in mind is that, if you want to file a complaint, you must act swiftly. As with most legal actions in the United States, the FINRA complaint process includes time limitations.
A claim must be filed within 6 years of the action triggering the complaint.
There are, beyond that, statutory time limitations (“statutes of limitations”) available to the complained-of firm or broker for certain specific allegations.
If you have suffered injury due to the action or inaction of a FINRA-regulated entity or individual, it is vital that you consult a securities attorney immediately to discuss your options.
The steps for pursuing a FINRA complaint are otherwise as follows:
File A Statement of Claim
The so-called Statement of Claim is filed electronically through FINRA’s DR Portal.
The Claim must contain all of the details of the improper activity of the regulated broker or firm, including names, dates. It must also request some specific relief.
Await the Respondent’s Answer
The firm or broker receiving the complaint will have 45 days to provide an answer, laying out any available defenses to the Claim.
Section of Arbitrator
Upon receipt of the broker or firm’s answer, FINRA will generate a list of arbitrators from which a panel will be appointed.
Depending upon the amount of money involved, FINRA will appoint 1-3 arbitrators to review the Claim. (If the disputed amount is less than $50,000, FINRA may review the issue based on legal briefs submitted by the parties alone, without arbitrators.)
Prehearing Conferences and Discovery
As with any litigation, the action then proceeds through a series of required prehearing conferences establishing dates for conclusion of discovery (information-gathering and documentation demands by the parties), motion-filing dates, and hearing dates, among other procedural phases of the process.
Hearing and Oral Argument
The hearing will be held in a location mandated by FINRA. Questions will be asked, defenses raised, argument laid forth, and the panel will hear the evidence proffered by the parties.
Afterward, the panel will decide if any damages or other relief are owed to you. Usually, the arbitration panel will render its decision within 30 days of the hearing.
All told, the process takes approximately 12-18 months to conclude.
Do You Want to Sue Your Financial Advisor?
If you feel that you have a basis for suing your financial advisor, it is essential that you discuss your options with an experienced securities lawyer as quickly as possible.
Contact us now to schedule your initial discussion.