Can You Sue A Bad Investment Advisor?

It is an important part of financial planning. If you are new to investing or lack the knowledge to do so, you may want to consult an investment advisor.

Some investment advisors are negligent, and you may lose money in your investments. Although the UK has regulations in place that outline the relationship between advisors and clients, there are still many questions. What happens if this relationship goes sour? Can you sue an investment advisor who is not up to par?

This article will examine the responsibilities and legal bases for lawsuits of investment advisors. It will also explore any statutes of limitations, class actions, possible defences against lawsuits as well as litigation versus arbitration. This article will also include an analysis of recent lawsuits against investment advisers, with a focus on St James’s Place compensation.

Can you sue a bad investment advisor?

Responsibilities Of Investment Advisors

Investment advisors are primarily responsible for guiding and assisting their clients to make sound financial decisions which will be beneficial to them. Advisors are responsible for the following to achieve this goal:

To give accurate and up-to-date information to clients.
To carry out extensive and thorough research on behalf of their clients.
To take the information previously obtained and to create an investment strategy (or several strategies) aligned with the client’s risk tolerance and financial end goals.

Investment advisors should also put their clients’ interests before their own. Also, they should be completely transparent and disclose any conflicts of interest. Clients should expect that their advisor will act with good faith and show loyalty to them. It is known as the fiduciary responsibility.

Types Of Misconduct By Investment Advisors

Some investment advisors do not fulfill their fiduciary duty. This usually means the advisor has committed some sort of misconduct. It could be anything from misrepresentation, or failing to disclose valuable information to a conflict or intentional investment fraud. In the table below, you can see five types of misconduct:

Forms of Insubordination
Misrepresentation	If your advisor has given you false or misleading information about your investments.
Churning	This is the act of buying or selling securities solely to generate commissions for your advisor and not to achieve your financial goals.
Unauthorised trading	If your advisor makes a trade with your permission but without your knowledge.
Conflicts of Interest	When your advisor does not disclose any conflicts of interest, they may act against your best interests.
Negligence	When you advisor fails to complete the proper research or does not monitor your investments.

Legal Grounds For Lawsuits

You may be able to sue if you suffered a financial loss due to the negligence or misconduct of your investment advisor. You may have legal grounds to sue if you feel this has happened.

Breach of fiduciary duties: As discussed previously, you may be entitled to compensation if your advisor breaches their fiduciary obligations in any way. This is when an advisor fails to act in your interests, does not provide the necessary care or does not fulfill your agreement.
Negligence: If your advisor was negligent about their duties regarding your finances or investments, and as a result you suffered a loss, you could have a claim.
Fraud and misrepresentation – If your advisor provides you with incorrect or false information or leaves out any details which may affect your investment decision, you can claim compensation.

The goal of the legal system is to protect investors and hold advisors accountable for their actions.

Financial Losses and Advisor’s actions

You can, just like in any other case, link your investment adviser to any financial losses that you believe occurred due to their negligence or misconduct. You will need to present a lot of evidence if you want to win a case in court. You may be able provide a variety of evidence, including expert testimony, financial records, logs of communications between you and the advisor, market information and the advisor’s advice in relation to it, and evidence showing the impact that the loss had on your portfolio. This evidence will help establish the link between your advisor and your losses.

Statute Of Limitations

A statute of limitations is a time limit within which a lawsuit has to be filed. There are many different statutes of limitation in the UK. You must file a complaint within six years after the alleged act of misconduct or negligence. The time limit can be extended if you notify the company first and not the Financial Ombudsman. You will increase your chances of success by being proactive and initiating your case as soon as possible.

Class Action Lawsuits Against Advisors

When multiple clients join together to file the same lawsuit, they must have suffered the same loss or a similar one. This type of lawsuit is more cost-effective and practical than going it alone, and can strengthen your legal case.

To proceed with a class-action lawsuit, the case must be certified by a court and meet certain criteria. Moreover, each client must have common factors. In the UK, court action lawsuits also tend to be less common.

Defences Against Lawsuits

We will inform you of your right to sue an investment advisor who is not up to standard. However, we must also make you aware of their possible defensive tactics. Three of the most common defences that your advisor might use include:

Your advisor will argue that your losses were not directly caused by their actions or advice.
The suitability of the advice: Your advisor will use this defence if they believe that the advice given at the time matched your financial goals and your tolerance for risk at the moment of the financial loss.
Statute of limitations. As we mentioned previously, your lawyer can use this defense if you did not file your lawsuit in the time specified.

They may also claim that your losses were due to the market conditions of the time, or that their actions are standard in this industry. Your case will be influenced by the specifics of your lawsuit as well as external factors. You must be prepared for your investment advisor to make counter arguments.

Arbitration vs Litigation

Check any agreements that you have signed with your advisor before you decide to sue them. You may have a clause in your agreement that says you must resolve disputes by arbitration and not through litigation. What does this actually mean?

Arbitration is an independent process that involves an arbitrator, who is a third-party impartial party. The arbitrator will examine any evidence of negligence or misconduct and make a decision.
Litigation is the process of taking your case to court and having a judge and jury make the final decision.

Arbitration is usually quicker than litigation. You may not be allowed to appeal a decision that is not in your favor. If you choose to litigate, your chances of getting to appeal are higher. This route is more expensive and takes more time.

Recent Notable Lawsuits Against Investment Advisors

Before you pursue your legal case, it is important to research recent lawsuits. They may offer valuable insight. The importance of regulatory scrutiny is demonstrated by notable lawsuits involving well-established financial institutes.

St James’s Place, a prominent UK wealth-management firm, is one of the most notable cases. The firm faced censure and legal action in 2022 for failing to disclose practices related to charges and costs to its clients. After investigating the case, St James’s Place and the Financial Conduct Authority reached an agreement in which affected clients received compensation.