Investment Losses: Bad Market or Bad Advice?

Why Start With Your Financial Plan Rather Than the Loss?

An investment should ordinarily be assessed in the context of the investor who owned it.

Among the questions worth asking are:

• What did the advisor know about your age, income and financial circumstances?
• When did you need the money?
• How much price fluctuation were you willing to experience?
• How much were you willing to lose?
• How much could you afford to lose?
• Did you need access to the money?
• How much investment risk was disclosed to you by your advisor at the time of purchase?
• Did you actually understand the risks and agree to take them?
• Was your portfolio properly diversified?
• Did your circumstances change?
• Did the advisor respond to those changes?

Problems can involve failures to properly gather know-your-client information, understand products or conduct an appropriate suitability analysis.

What Portfolio Patterns Can Raise Questions?

Sometimes the portfolio itself raises questions.

Examples include:

• concentrated holdings of a security;
• investments you do not remember approving;
• frequent transactions you do not understand;
• investment strategies that you do not understand;
• products whose risks were never adequately explained;
• investments you cannot sell when you need your money; or
• portfolios that seem remarkably similar to those recommended to clients with very different circumstances.

None proves negligence by itself. But each may justify a closer examination.

What Did the Advisor Do When Your Life Changed?

Your financial circumstances at 45 may bear little relationship to your circumstances at 65. Retirement, divorce, illness, loss of employment, inheritance and the death of a spouse can materially change an investor’s needs. If major things changed in your life but nothing changed in the advice you received, ask why.

What Documents Can Help Explain the Advice?

Investment-loss lawsuits are decided on evidence, not just recollection.

Keep:

• account statements;
• KYC documents;
• emails and texts;
• investment presentations;
• financial plans;
• notes of conversations;
• transaction confirmations; and
• promotional materials you received.

What you were told matters. What can be proved matters enormously.

When Should You Ask Questions About a Loss?

Do not assume a large loss proves negligence. But do not assume that because markets fluctuate you have no reason to investigate.

The useful first question is: Given what my advisor knew about me, did this investment strategy make sense for me at the time?

That can be a much better starting point than simply asking whether your investments went down.

For information about our services, see unsuitable investment advice.

You can also read about investment-loss recovery options.

Frequently Asked Questions