If you are an investor, you know the importance of investment managers, investment advisors and other financial consultants. These are the people who are given you their presumedly expert advice regarding how to manage your investments to minimize risk and maximize return.
But what happens when your investment expert makes errors? Of course, these errors are likely to be costly to you on a personal or professional level, but these errors could also represent something deeper. Your investment advisor could be incompetent, or you could be a victim of investment fraud.
How can you know whether you are facing simple error or incompetence?
There are common causes of financial advising error.
1. Simple mistakes of judgment
The marketplace is an unstable, unpredictable entity by nature. If this were not true, no one would hire an investment consultant in the first place. Because of this inherent instability, even the most competent financial advisors have some misses. It happens.
Simple error in judgment per se does not rise to the level of an actionable offense, and for the most part victims of simple error have no legal recourse.
2. Lack of communication
Agents are required to act in the best interest of the principal and are only allowed to act within the scope of their allotted authority in an agency arrangement. In financial advising, the advisor must always act in the best interest of the investor, and if the advisor is going to deviate from the plan given from the investor, he or she needs to communicate that and get approval before proceeding.
There are some cases in which the failure to communicate has led to serious financial losses, resulting in an investment lawsuit.
3. Inadequate education and training
Although many investment advisors are competent and well educated, many are not. In fact, obtaining credentials to provide financial advising services is a much simpler process than it is in other professions like medicine or law. It is relatively simple and underwhelming process to obtain the credentials necessary to legally handle millions of other peoples’ dollars in securities investments. This is a frightening prospect.
Assuming your advisor has adequate licensure to perform the service, there is not much you can do if your investor’s lack of adequate training and education has resulted in financial losses. The best thing to do is avoid this problem on the front end by interviewing potential advisors and double checking their education.
While many instances of failed investments come down to other, less nefarious, reasons, instances of fraud are real.
However, investment consultation fraud can be extremely difficult to prove in court. If there is hard evidence of forged documents or falsified information, your case will be relatively simple. But most cases of this kind do not have this type of evidence. In most cases, the fraud is much more subtle and difficult to uncover.
Beware of fraud from your investment consultant. Make sure you only work with investment advisors you trust, and if you think you have been defrauded by your investor, an experienced securities litigation attorney can help you.