Making a Complaint to Your Broker or Financial Advisor
Sometimes, things just go wrong with your broker. An investment doesn’t perform well. Your advisor gives you bad advice. Perhaps you didn’t fully understand the risks or the investment you were purchasing and feel it should have been explained to you better. Financial Products are complicated, and investing can be a complex endeavor. You may have relied on the experience of a professional to help you. Often, this reliance is warranted. Sometimes it is not.
It’s not always your advisor’s fault. As a compliance supervisor, I would review many cases were advisors very diligently explained the products they were recommending and the risks associated with them. They would educate their clients and expound on not only the benefits, but also the disadvantages of every strategy or product. They would take time to develop a portfolio where risk could be mitigated. Even with these precautions, people can and often do lose money. Especially in the short term and during difficult economies. That is not and advisor’s fault. It’s not the client’s fault either for investing in the product. It just happens.
Sometimes it is the advisor’s fault. As I’ve said on many occasions, investment products can be complicated. So complicated that there are brokers and advisors who think they understand how a product works when in fact they do not. There are also times when product features vary from State to State. It is an advisor’s job and regulatory responsibility to have a reasonable basis to believe a product is suitable for a client. A misunderstanding of how a product works leads to bad recommendations. While no harm is intended, harm happens. That is the advisor’s fault.
The client is not off the hook. A client needs to understand a recommendation from a broker or advisor. He or she should read the product literature, ask questions, and if needed, research further. If a client does not understand how a product works, the client should not invest in the product.
Then there’s the serious stuff. While it’s rare, there are bad brokers and advisors out there. There are advisors who mislead clients, lie to clients, cheat clients, and defraud clients. There are brokers and advisors who make recommendations specifically to generate commissions. There are brokers who make mistakes, and then try to cover them up.
So what can you do if you are unhappy with a broker or advisor? First, ask yourself the following: 1) am I unhappy with the service I’m getting, 2) do I think my advisor gave me bad advice, and 3) do I think my advisor tried to deceive or defraud me?
If you are unhappy with the service you are getting, a phone call to your broker or advisor may be enough. If it isn’t, you may want to contact customer service or the branch manager and express your concerns. If the lack of service is causing you harm, for example, you directed your advisor to purchase shares in XYZ stock on a Tuesday, and the order was not executed until 3 days later at a higher price, you should make a complaint. Complaints are best made in writing, and should be sent to your advisor’s manager. The complaint should be short and to the point. It should give a brief history, an allegation, and a demand. The complaint above may look something like this:
Dear Branch Manager,
On Tuesday, September 15, 2020 at 2:00pm, I contacted Mr. Joe Advisor and directed him to purchase 1000 shares of XYZ corp. at the market, which was $10 per share at the time. When I reviewed my confirmation for the transaction, the trade was placed 3 days later, Friday, September 18, 2020 at 9:40am at $13 per share. Because the purchase was delayed, I paid $3,000.00 more than I should have. I would like the trade corrected to reflect the $10.00 per share purchase amount, or have the $3,000.00 credited back to my account.
Sincerely, Loyal Customer
The branch manager will investigate your complaint. He or she may contact you and ask if you have documentation of your call or conversation. He or she will also contact your advisor. Often an issue like this is fairly easy to correct.
If you think you were given bad advice, you should ask yourself if the advice was bad because you lost money, or because it was bad advice FOR YOU. Just because an investment wasn’t profitable, it does not mean it was bad advice per se. If you are an experienced and aggressive equity investor and your advisor recommends a stock that goes belly up, without some wrongdoing on the advisor’s part, you really don’t have anything to complain about. If an advisor knows you are very concerned about losing money and want income from your investments, but places you in a “safe” Municipal Bond Fund with large fluctuations in value, that is a different story. Brokers and advisors have an obligation to recommend products they reasonably believe are suitable for you. Again, in a case like this you would want to send a complaint letter to your advisor’s branch manager with a short history of what happened, the allegation (bad advice) and your demand. If you do not receive a response, or you feel the response is inadequate, you may be able to seek damages in the courts or through arbitration. Many brokers are regulated by the Financial Industry Regulatory Authority (FINRA). Go to FINRA.org, or consider contacting a qualified attorney with questions.
If you think your broker or advisor tried to deceive or defraud you, you should consider carefully what happened, where you were mislead, and how you have been harmed. You may want to contact and attorney for advice. You can also write a complaint letter to your advisor’s branch manager, or make a complaint to FINRA, the SEC, or your State Securities Commissioner. If the issue involves an annuity or insurance, you can also make a complaint to your State Insurance Commissioner. Fraud can be hard to prove. Keep notes of your conversations with your advisor and the financial firm. You may need to be specific about what happened in your letter, and also make clear that you did your own due diligence regarding the recommendations, and only went forward due to the wrongdoing on the advisor’s side. For more information visit FINRA.org.
There are some things your broker or advisor must, and cannot, do when you make a complaint. When you complain to your broker or advisor by making an allegation of wrongdoing, the broker or advisor should advise you of how to make a formal complaint with the firm. If you ask for information on how to make a complaint, your advisor needs to give you instructions on doing so including giving you his or her manager’s contact information, or the contact information for the compliance department. Your broker or advisor cannot ignore your complaint. Nor can he or she try to handle the complaint him or herself by offering to self settle or, “make things right”, or offing to “fix it”, or by giving you money. The broker or advisor cannot pay you directly for loss (share in losses) or offer to give you anything for free if you agree not to complain.
Complaints to your broker or financial advisor’s manager are often the first step you should take when trying to address a problem. If the complaint goes nowhere, you may need to consider other options such as complaints to regulators, courts, and arbitration. You may want to contact a qualified attorney to help.
The information contained in this blog is general in nature and should not be viewed, and is not intended by the author to be viewed, as legal advice. For specific legal advice, please discuss your situation with a qualified attorney.