In the U.S., the Securities and Exchange Commission (SEC) does its best to protect investors from being cheated. To do so, it keeps a close eye on the work of investment professionals as well as the investments themselves. However, the extent to which professionals can be held liable for the guidance they give depends on the circumstances under which they do it.

To decide whether the investment professional should be held liable for his or her advice, the SEC will try to determine whether the investment advice was suitable for the client and whether the professional, bound to a fiduciary duty, acted in the client's best interests. To be as precise and concrete as possible in defining your "best interests," a professional who is hired to offer you advice should ask you for some documentation that outlines your risk profile and investment goals. Then, he or she is duty-bound to help you ensure that your investment choices remain consistent with your profile and goals.

Since financial planners and brokers are "professionals," they are considered experts, which in turn gives them a responsibility to give you proper guidance in your financial endeavors.

If you act on any investment advice that you believe caused you losses because it was inappropriate according to your risk profile and investment goals, you should immediately contact the professional who gave you the advice, his or her company and the SEC (all in writing). For you to have a chance of being compensated for what you lost, you must prove that the broker's suggestions were not within the specifications included in your risk profile and investment goals, and that you were not made properly aware of the financial risks involved. If the investment was in fact in line with your profile, or if your broker fully explained to you what the risks were and you invested anyway, the financial professional is typically not liable for your losses. Remember that, although brokers and financial planners must act in your best interests, they cannot control market movements or reverse the risk/reward tradeoff, so you can't blame them for all your losses.

To read more about financial advisors, see Find The Right Financial Advisor, Choosing An Advisor: Wall Street Vs Main Street and Tips For Resolving Disputes With Your Financial Advisor.

  1. What happens to a 529A account when the beneficiary dies?

    According to the Achieving a Better Life Experience Act of 2014 (ABLE Act), when the designated beneficiary of a 529A account ... Read Full Answer >>
  2. Can you have more than one 529A account?

    According to the Achieving a Better Life Experience Act of 2014 (ABLE Act), a disabled person can generally set up only one ... Read Full Answer >>
  3. Can mutual funds only hold stocks?

    There are some types of mutual funds, called stock funds or equity funds, which hold only stocks. However, there are a number ... Read Full Answer >>
  4. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  5. Do mutual funds pay interest?

    Some mutual funds pay interest, though it depends on the types of assets held in the funds' portfolios. Specifically, bond ... Read Full Answer >>
  6. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
Related Articles
  1. Stock Analysis

    Top 5 Companies Owned by Ford

    Discover some of Ford Motor Company's most important subsidiaries and joint ventures, and learn more about what they do to further Ford's business interests.
  2. Stock Analysis

    Top 5 Companies Owned by Exxon Mobil

    Learn more about some of the biggest subsidiaries and joint-venture companies in the Exxon Mobil family, including both domestic and international businesses.
  3. Investing Basics

    How to Think About Seasonality Trends

    Investors benefit when company research incorporates seasonality trends that predict relative strength and weakness throughout the calendar year.
  4. Bonds & Fixed Income

    A Guide to High Yield Corporate Bonds

    The universe of corporate high yield bonds encompasses multiple different types and structures.
  5. Investing

    Warren Buffett and the Media Industry

    While most people believe traditional media is dead, Warren Buffett sees an opportunity.
  6. Investing Basics

    Which States Allow Marijuana Investments?

    The Cole Memo changed the way federal agents prioritize marijuana laws, a change that shifted greater focus on states' ability to legalize marijuana.
  7. Investing

    An Overview of Companies and Brands Owned by Yahoo

    Yahoo is much more than a web portal. Here are four companies owned by the multibillion-dollar conglomerate.
  8. Stock Analysis

    Top 4 Companies Owned by Comcast

    Read about the subsidiaries that make up Comcast Corporation's cable and media empire, and learn more about how they fit into the company's operations.
  9. Mutual Funds & ETFs

    How Interest Rates Affect Mutual Funds

    Find out how changing interest rates impact mutual funds, including bond and money market funds, and how higher rates can discourage investors.
  10. Mutual Funds & ETFs

    Passively Managed Vs. Actively Managed Mutual Funds: Which is Better?

    Learn about the differences between actively and passively managed mutual funds, and for which types of investors each management style is best suited.
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Principal-Agent Problem

    The principal-agent problem develops when a principal creates ...
  3. Emergency Banking Act Of 1933

    A bill passed during the administration of former U.S. President ...
  4. Slander

    Slander is the act of harming one person’s reputation by telling ...
  5. Libel

    Libel is publishing a statement about someone in written form ...
  6. Defamation

    Defamation is any statement (written or spoken) that damages ...

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!