A:

Financial advisors and planners have fiduciary responsibilities to their investors. They owe their investors a high degree of loyalty as they are in positions of trust and confidence. Execution of an order depends on the type of order that is placed and the liquidity of the investment. If you asked your financial advisor/planner to sell a specific number of shares of a widely traded company at the market price, you could reasonably expect your market order to execute within 24 hours. Orders that place limits on the order, such as price, will typically take longer to execute. Most financial institutions will not accept email or voicemail trade requests as they can be easily missed; firms now recommend that you speak with your advisor directly or put your request in writing. In any case, you should follow-up on-line or with a call to your advisor before market close for the sell price to make sure the trade was executed on your behalf.

Advisors and planners have duties to inform their clients of transaction and investment risks. When they are disloyal and betray that trust and confidence, they can be held liable for damages. If a broker misrepresents or fails to provide information regarding an investment or transaction, you may have a potential claim against that broker to recover your losses.

There are many claims that can be brought by investors against their brokers, brokerage houses, retirement plan sponsors, financial planners, fund managers and investment advisors. The most common claims include:

  • Churning - excessive trading in an account to generate commissions;

  • Failure to execute or follow instructions from the investor with respect to his investments;

  • Margin complaints - such as liquidating securities without giving the investor prior notice, prior to a deadline or after failure to meet a margin call;

  • Misappropriation - misappropriating investor funds;

  • Misrepresentations and omissions - intentionally or recklessly misleading or failing to disclose material facts regarding an investment;

  • Negligence - advisor failing to exercise due diligence and/or failing to act as a reasonable and prudent advisor;

  • Unsuitability of recommendations or investments - advisors are required to determine the suitability of an investment based on an evaluation of the investor/customer's investment experience, risk aversion and other factors.

Each of these claims must be evaluated on a case-by-case basis. In most circumstances, several of these claims can be worked out between the financial firm and the client without ever going to litigation. If an amicable resolution cannot be reached, then you may escalate your case to be decided in arbitration by an arbitrator, who then decides liability and damages, if any.

For related reading take a look at Picking Your First Broker and Shopping For A Financial Advisor.

This question was answered by Steven Merkel.

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