Can You Sue Your Financial Advisor for Losses?


If you have experienced significant losses on investments, you may be wondering if you can sue your financial advisor to recoup your losses. When an advisor or the brokerage firm for which they work fails to follow FINRA’s rules and regulations, resulting in investment losses, you can file an arbitration claim to get financial compensation. Some of the most common reasons to sue a financial advisor are:

1.  Negligence

When you seek the assistance of a financial advisor, you unquestionably expect them to be completely trustworthy and diligent in assisting you in managing your wealth. Financial advisor negligence occurs when your financial investor fails to act reasonably to cushion you from financial harm, such as if your financial advisor uses investment strategies that are not within your stated investment objectives and risk tolerance, you can sue them for negligence. To determine financial advisor negligence, you should look for evidence that meets three basic requirements: causation, breach of duty, and duty of care.

2. Breach of Fiduciary Duty

A fiduciary is a person who is legally obligated to put another person’s interests ahead of his. Depending on their licenses and certifications, a financial advisor might have a fiduciary relationship with you. If the financial advisor is a fiduciary and puts their interests ahead of the client’s, the advisor is breaching their fiduciary duty to the client. In a breach of fiduciary duty, a financial advisor may be held liable to their clients under federal or state security laws.

FINRA and SEC rules prohibit any action a financial advisor takes that’s opposed to the client’s best interests. Financial advisors may violate their fiduciary duty to their clients in many ways. Any fraud benefiting a financial advisor that harms the client is deemed a breach of fiduciary duty.

3.  Churning and Reverse Churning

Churning occurs when the hired financial advisor executes numerous trades in your account to generate commissions. It is illegal under federal and state laws, as well as FINRA rules, so if you notice signs of repetitive or excessive trading, you can take legal action. To see if your financial advisor has been churning your account, you should look for frequent trades, declining account value in rising markets, and switching mutual annuities or funds.

On the other hand, reverse churning is when the hired financial advisor puts your money in a fee-based account while doing little management of funds, resulting in losses. If your financial advisor provided little or no advice during investment, you could take legal action. To detect reverse churning, you can look for signs of double-dipping, inappropriate enrollment, and inactive advisors.


Financial damages claims are not for the faint of heart, but they may be worthwhile. Suing a financial advisor or brokerage firm is not easy, but not impossible, and it may be worthwhile to try. However, litigation itself is an investment, complete with risks and rewards. There are significant financial and non-financial costs involved. Before making a sound decision, you should consider all of these factors.

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