The stock market has demonstrated sustained volatility this year that we simply haven’t seen for more than a decade. Though it should be noted that if the market recovers by Fall 2022, it will look more like 2018 than 2005. As we represent investors against their rogue brokers, investment advisors, and insurance agents, a frequently asked question we receive is, “The market took a tumble, you’re super-busy with brand-new cases, right?” The answer today is “No,” but that’s to be expected.
If the market is down, why wouldn’t we be flooded with calls from angry investors asking for help?
The answer is simple: most investors understand that markets go up and down. They also understand that a well-diversified portfolio should recover its value as the market goes back up. In times like these, financial services professionals repeat the mantra, “Stay the course. Wait for the market to come back.” And it is good advice if the portfolio really is diversified, and there aren’t needs to liquidate and raise cash while prices are depressed. However, the problem arises when that advice to stay the course is a little more than the financial advisor praying that his poor selections will rebound in a way they almost certainly won’t. In other words, “Stay the course” can often mean “Please, please, please let these lousy investments rebound so you don’t realize I gave you terrible advice.”
Considering our experience with these cases, we know there’s typically a six to nine-month gap between a market event and a meaningful rise in cases. It usually takes that long for people to realize that “Stay the course” simply meant “Wait to sue me.” Most commonly, as the market rebounds and people start talking about their accounts are getting back to where they were previously, or that they are seeing additional growth, those investors who have claims against their brokers wonder why their accounts aren’t seeing the same activity. Concerned, these investors will start pushing their financial professionals for answers and will often receive the standard response, “You have to wait and be patient – your accounts will come back.” At some point, usually as their friends are solidly back into gain territory, those investors will begin to realize that their accounts are not going to come back. With this realization, they want to know why and if anything can be done.
What’s an investor to do when he or she is told to stay the course?
A good place to start is determining whether the investment portfolio is actually diversified. Here is a tip: among the first pages of many brokerage account statements are summaries of the account’s makeup. Note what percentage of the account is held in equities, fixed income, alternatives, and cash. While this is an oversimplification, look for an unusually high or low number in a particular category or security. An account comprised 100% in equities is typically considered aggressive (volatile) and an account comprised 100% in fixed income is typically considered conservative. To be fair, in most circumstances, an account shouldn’t be 100% in any category. The best way to avoid risk is to build a mix of equities, fixed income, and cash (and sometimes alternatives). An 80-year-old investor who needs income likely shouldn’t have 80% of their portfolio in equities. A 35-year-old investor who’s saving for the long term probably shouldn’t have 90% in fixed income and cash. Similarly, having more than 10% in any particular security carries a particular risk associated with the concentration.
The bottom line is that the failure to diversify and build an appropriate portfolio can provide a foundation for an investor’s claim against their broker or investment advisor.
Sometimes, however, the account can be well-diversified, but the individual investments selected are inappropriate. We’ve seen a variety of investment products over the years that promised safety and were almost certainly guaranteed to fail. The broker sold them because they didn’t understand the true nature of the products and believed the marketing hype themselves, or they wanted the higher commissions those products paid. It’s far more difficult for an investor to determine that a particular bad product, or series of products, is to blame for the poor performance of the account.
You tried to do the right thing by hiring a high-quality financial advisor, but now you wonder if you’ve become the victim of an unscrupulous one. You have nothing to lose by reaching out to discuss your situation. We’ll talk it through, review the appropriate provided documentation, and let you know whether we think we can help you recover your lost savings. Time is not your friend here as there are time limits that apply to your ability to bring a claim. If you have a question now, reach out now.
Please reach out to request a consultation or call us at (866) 932-1295. And, for more information about investor claims and securities fraud, visit our partner website, StockMarketLoss.com.
