The Decision to Sue a Financial Advisor is not so Cut and Dry

A recent Money Magazine columnist, who carries the nom de plume of “The Mole” and is an undercover financial planner, wrote a column entitled “Should I sue my advisor?”

“The Mole” relates a common situation where a broker is asked to review another broker’s performance and finds that unsuitable investments were made and excessive fees were charged. Indeed, many of the cases referred to Zamansky & Associates’ are from these “second” brokers, who are often the best ones to determine whether the previous advisor abused the client, yet as The Mole asserts, only a qualified securities arbitration attorney should be trusted with this advice.

But I do disagree with The Mole on some of his/her points. The Mole writes that “the award is typically a small fraction of what's requested, sometimes not enough to cover the cost of the suit.” Many lawyers, including our firm, take cases on a contingency or success fee basis so that if there is a successful arbitration or more commonly a financial settlement, only then are legal fees incurred. In other words, the financial interests of the aggrieved investor and his/her counsel are aligned.

Secondly, The Mole takes a look at disclosure documents, such as the investment advisory agreement and the prospectus, and sees the fine print as iron clad. True enough, while arbitration panels will be presented with disclosure documentation, that’s not dispositive of a case. Securities arbitration panels will hear testimony from both broker and client and make judgments based upon the credibility of the witnesses. If an arbitration panel thinks that a broker made a material misrepresentation to a client, the fact that documents contain disclosures may be ignored by the panel which could issue a monetary award against the broker. Furthermore, where a broker has a number of customer complaints on their record, arbitration panels may find it more likely abuse has occurred.

The Mole and I may disagree on some things, after all he’s a financial planner and I am a securities arbitration attorney, but we both agree that the best policy is to not buy a “financial product or [do] business with an adviser unless you understand what you're buying and what you're paying in total fees.”