People who turn to advisors for their investment strategy expect that the advisors will work in their best interest. This doesn’t mean that the adviser can guarantee success with any investment strategy. Instead, it means that the adviser considers several points as they’re determining which strategy is best for a specific client.
When it comes to investing, every decision carries some level of risk. Because of this, an advisor should determine a client’s risk tolerance and match their investment strategy to that. Some of the factors that must be considered include age, income, investment goals and how comfortable someone is with normal market fluctuations.
In order to determine the appropriate strategy, the advisor should ask several questions. They also need to explain the risk and reward ratio for each investment strategy. It’s also important to discuss asset allocations for each and how those would align with long-term goals for the client. A failure to provide this kind of personalized guidance can be more than just a lapse in service. In some cases, it’s a breach of fiduciary duty.
What should investors do if their risk wasn’t properly assessed?
While it’s normal to suffer some investment losses as part of a long-term strategy, it’s important for investors to understand that if they believe these losses stem from improper risk tolerance assessment, they may need to take action. One of the most important things to do is to keep records of communications and the changes that are made to your portfolio. Putting these together could show that your adviser ignored your preferences.
Advisers must always act in the best interest of their clients. If there’s evidence of negligence or misrepresentation, making a formal complaint or going through arbitration with regulatory bodies may be appropriate. These cases can be complex, so it may be beneficial for the investors to work with someone familiar with these matters.
