Can a Financial Advisor be Sued?

If financial advisors could predict the future they would have no dissatisfied clients. But the best they can offer their clients are accurate predictions and recommendations based on their knowledge of the financial system. As such, clients really can’t blame financial advisors or take legal action against them if they experience a loss—or can they?

In general, individuals do not have a case against financial advisors if they lose money based on their advisor’s recommendations. In other words, they cannot be held liable for simply making recommendations or informing clients of their choices. When clients ask a financial advisor to give them a list of the newest mutual funds, for example, and they lose money investing in one of them, the financial advisor simply can’t be held liable for providing that information to their clients.

Financial advisors know how to protect themselves when it comes to financial advice, as well, as can be seen in any written material, which usually comes with its share of fine print disclaimers. Further, the majority of brokerage houses ask their clients to sign a contract, which includes language stating that they cannot sue the financial advisor based on failed investments.

However, with that said, there may be a few instances where financial advisors may be sued:

When the financial advisor is accused of professional negligence

Financial advisors may be sued for professional negligence if the client can prove that they do not have the skills or knowledge they claim to have. For example, if a client seeks the services of certified financial planners who exaggerate or falsify their credentials and the client loses money as a result, a case could be made for professional negligence. Clients may also seek damages if they can prove their financial advisor didn’t act in a competent manner, such as failing to research a particular investment strategy before recommending it.

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When the financial advisor is accused of a deficiency in service

Clients may seek compensation if they can prove that their financial advisor did not act on a requested action or service. For example, if the client asks the financial advisor to invest in a particular investment and the advisor fails to do so, thereby resulting in a missed opportunity, the client may sue for a deficiency in service.

When the financial advisor is accused of fraud

Most of the time, clients sue financial advisors for what they consider fraud. Although they can seek a civil trial in an attempt to collect monetary damages, if fraud is a factor, criminal charges are typically sought.