Unsuitable Investment Advice and Investment Loss Claims

Was the investment wrong for your needs?

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You may have been told that your loss was simply caused by the market.

Sometimes that is true. Markets rise and fall, and even an appropriate investment can lose value.

But some losses happen because the investment or strategy should not have been recommended to that investor in the first place.

Led by Harold Geller and Matthew W. Taylor, the Sotos Investor Protection Group helps investors determine whether financial advice, an investment recommendation or an overall strategy may have contributed to their losses.

An investment may have been unsuitable if it did not fit your:

age or stage of life;
financial circumstances;
investment goals;
risk tolerance;
ability to withstand losses;
investment knowledge;
retirement plans;
income needs;
time horizon; or
need to access your money.

You do not need to know whether your advisor broke a rule before contacting us.

Start with what you were told, what you understood and what happened afterward.

Not Every Investment Is Right for Every Investor

An investment can be legitimate and still be wrong for you.

An investor with stable income, substantial assets and many years before retirement may be able to accept risks that would be inappropriate for someone who relies on investment income, needs access to savings or cannot afford a significant loss.

The question is not only whether an investment had the potential to make money.

The question is whether the recommendation made sense for you.

A suitability review may consider:

your income, savings, debt and other assets;
your investment experience;
your goals;
your risk tolerance;
your ability to absorb a loss;
when you expected to need the money;
whether you required regular income;
whether you needed access to your capital;
your retirement plans;
your tax circumstances; and
the rest of your investment portfolio.

Your circumstances can also change.

Advice that may once have been suitable can become unsuitable after retirement, illness, job loss, divorce, an inheritance or another major life event.

Read more about Bad market or bad advice?.

Warning Signs That the Advice May Have Been Unsuitable

The advice may deserve a closer review if:

you were told the investment was safe, conservative or low risk;
the loss was much larger than you understood was possible;
too much of your money was placed in one investment, fund, company or sector;
you were approaching or already in retirement but were placed into speculative investments;
you needed income but the investment did not provide reliable income;
you needed access to your money but the investment was locked up or difficult to sell;
you were encouraged to borrow money to invest;
you were sold a complex product you did not understand;
the downside risks were not clearly explained;
your advisor did not update your plan after your circumstances changed;
your risk profile does not reflect what you remember discussing; or
your advisor’s explanation changed after the loss occurred.

One warning sign does not prove that the advice was improper.

But several warning signs together may suggest that the loss was not simply caused by normal market risk.

Keep the account records and communications that show what was recommended and what you were told. Note the investment, the advisor and when you first became concerned.

What Do KYC and KYP Mean?

Two concepts often matter when assessing unsuitable investment advice: Know Your Client and Know Your Product.

Know Your Client

Before making recommendations, an advisor should understand relevant information about you.

That includes more than asking you to select a label such as “conservative,” “balanced” or “speculative.”

Your advisor may need to understand your:

financial circumstances;
investment objectives;
risk tolerance;
capacity to withstand loss;
investment knowledge;
time horizon;
retirement plans; and
need for access to money.

Concerns may arise if:

your advisor did not exercise independent and competent analysis of your investment objectives, risk tolerance, time horizon, or needs
your information was recorded incorrectly;
your risk tolerance was overstated;
the advisor recorded your time horizon as “long term” when you were approaching or in retirement – then your time horizon should have been “short term”
forms were completed without a meaningful discussion;
you signed blank or incomplete documents;
information was changed after you signed;
your advisor relied on outdated information; or
the documents do not reflect what you actually said.

Know Your Product

An advisor should also understand the investments being recommended.

A complex product may involve risks relating to:

liquidity;
fees;
borrowing;
valuation;
default;
concentration;
market conditions; or
restrictions on withdrawals.

If an advisor did not properly understand the product, the advisor may not have been able to determine whether it was right for you or explain its risks clearly.

What If My Risk Profile Is Wrong?

Your account records may say that you were comfortable taking more risk than you remember discussing. Often advisors increase your recorded risk tolerance to sell you their favourite securities or funds that pay them more for the sale. These are serious breaches.

A risk profile can matter because it may be used to justify the investments recommended to you.

A review may consider:

how the profile was completed;
whether the questions were explained;
whether your answers were recorded accurately;
whether your ability to withstand a loss was considered;
whether the profile changed over time; and
whether the investments actually matched your circumstances.

A document saying that you were a “speculative” investor does not necessarily end the analysis.

What If the Risks Were Not Clearly Explained?

A recommendation may deserve review if you were told:

the investment was safe;
the investment in a private equity or credit was unlikely to be “gated”
your principal was protected;
you could get your money back whenever you wanted;
the investment was similar to a GIC or bond;
losses were unlikely; or
the income or return was dependable.

The issue is not simply whether a document somewhere mentioned risk.

A review may also consider what was explained, what you understood and whether the recommendation was appropriate despite those risks.

What If Too Much of My Money Was Put in One Investment?

Concentration can increase the impact of a loss.

A portfolio may deserve closer review where a large percentage of the investor’s savings was placed into:

one company;
one private fund;
one sector;
one investment manager;
one strategy;
several investments exposed to the same underlying risk; or
if the advisor or company puts too many of their clients in an investment, creating an impossible situation if the investment is no longer good or suitable.

Diversification does not eliminate investment risk, but excessive concentration may expose an investor to losses that were inconsistent with their needs.

What If My Advisor Told Me to Borrow to Invest?

Borrowing can magnify both gains and losses.

A leveraged strategy may leave an investor dealing with:

investment losses;
interest payments;
margin calls;
forced sales; and
debt that remains after the investment falls in value.

A review may consider whether you understood the additional risks and whether borrowing to invest was appropriate for your finances and ability to withstand loss.

Does Being an Accredited Investor Mean the Investment Was Suitable?

No.

Being legally eligible to purchase a particular investment does not necessarily mean that the investment was suitable for you.

An accredited investor may still:

need access to money;
have limited investment knowledge;
rely on retirement income;
be unable to withstand a large loss;
misunderstand the product; or
require a conservative strategy.

Suitability depends on the investor’s actual circumstances, not simply whether the investor met a financial threshold.

Who May Be Responsible?

Depending on the facts, a claim may involve:

a financial advisor;
an investment representative;
a portfolio manager;
an investment dealer;
a bank;
a wealth-management firm;
an exempt-market dealer;
a professional who referred you to the financial advisor, or
another institution involved in recommending or supervising the account.

A firm may have responsibilities relating to:

supervision;
documentation;
product review;
suitability
conflicts of interest;
advisor conduct; and
complaint handling.

How Can an Investment Loss Claim Be Resolved?

Possible options may include:

a complaint to the advisor’s firm;
an OBSI complaint;
negotiation;
mediation;
arbitration;
civil litigation;
a coordinated group claim; or
a class action.

The appropriate route depends on the amount lost, the evidence, the parties involved and applicable legal deadlines.

Explore Investment-Loss Recovery Options

Investor Protection Experience, Backed by Litigation Strength

Harold Geller brings more than 30 years of investor-protection, financial-services and complex-product experience.

Matthew W. Taylor brings complex investment, securities and class action litigation experience, particularly where losses affect many investors or involve several potential defendants.

Frequently Asked Questions

Can I sue my financial advisor for bad investment advice?

Possibly.

A market loss alone does not automatically create a claim. A potential claim may arise where the recommendation was unsuitable, important risks were not clearly explained or the advisor otherwise failed to act properly.

What if I approved the investment?

Approval can be relevant, but the question may also include whether you understood what was being recommended, whether the risks were properly explained and whether the investment was suitable for you.

What if I signed the risk forms?

A signed form matters, but it may not tell the whole story.

A review may consider who completed the form, whether it was accurate, whether it was complete when signed and whether it matched what you actually told the advisor.

What if the investment was suitable when I first bought it?

Advice may need to change when your circumstances change.

Retirement, illness, divorce, job loss, inheritance or a new need for income or liquidity may require a different strategy.

Do I need to know exactly how much I lost?

No.

Account statements, transaction records and other documents can help determine the amount and cause of a loss.

Should I complain to the firm before speaking with a lawyer?

You may be able to complain directly to the firm, but legal deadlines can continue while a complaint is being reviewed. Early legal advice can help you understand your options.