“I am frustrated and would like to be able to recoup some of my losses.” (Photo subject is a model.) - Getty Images/iStockphoto
Dear Quentin,
I am 68 years old and will be retiring soon. For several weeks I have requested — via phone calls and emails — that my financial adviser move my investments out of the market and into something safer such as CDs. His response was always, “I haven’t forgotten about you. I’m researching the best investment vehicle for your situation.”
Cue the market downturn and I lost $20,000. I called again and begged him to get me out. He told me he would have my money out of the market by the end of the day — and it was. If he had moved my money out of the market weeks ago, much of my loss could have been prevented. I am frustrated and would like to be able to recoup some of my losses.
Do I have any recourse with the company he works for?
It’s a delicate balance between investor risk and broker advice. - MarketWatch illustration
Dear Annoyed,
You only lose when you sell. Today, you will rue the day he delayed selling.
Tomorrow, you may rue the day you asked him to do so. It’s a bad idea to time the market, and it will recover eventually, and investors’ funds will continue to gain value over time. That’s not my opinion. I, like most Fed officials and economists, have no real idea what will happen in the near future. If you had held, you would have had $20,000 in paper losses.
But history tells us that through the most dramatic twists and turns of the U.S. economy and the stock market, whether it’s the Great Depression or the recession of 2007-09, a worldwide pandemic or a trade war that aims to redefine America’s relationship with its trading partners, the stock market abides. It takes patience and, sometimes, nerves of steel, but the long-term trajectory points up.
Take the S&P 500 SPX: It fell 18% in 2022, rose 26% in 2023, increased by another 25% in 2024, figures show, and historical data show that it can take between one month and one year to recover from a market correction (a 10% fall from a recent peak). Your adviser may have been slow off the mark, but I would have preferred that he give you long-term data for perspective.
Paper losses versus cashing out
The Cboe Volatility Index VIX is widely regarded as a key indicator of the market’s volatility. Known as the market’s “fear” gauge. It’s currently over 34, down from 52 in the days after President Donald Trump announced his tariffs on April 2. Volatility is a reflection of the uncertainty in the market, and as long as that persists, so, too, will the dramatic fluctuations.
You are frustrated with your financial adviser and would like to recoup your losses, but they may pale in comparison to the losses that you could face in five years. You can focus your ire on your adviser for not acting quickly enough, but to take all of your money out of the market leaves you vulnerable to the treachery of inflation that will nickel and dime you for years to come.
For every person bailing out of the stock market, there may be many others buying low, even if stocks fall lower, because they know that the long-term outlook has shown that, for those looking toward retirement, it will benefit them in the long run. And even though most economists have expressed concern, many Trump supporters are behind the tariffs.
Why I’m telling you all of this: You would need to prove that your adviser, not you, acted recklessly. To take legal action, he should be a fiduciary — that is, he pledged to put your interests before his own and that she breached his fiduciary duty. You would also have to prove a direct link between his actions and your losses — and show that those losses could have been foreseen.
The Financial Industry Regulatory Authority has rules to help ensure the protection of investors. Your attorney would have to be able to distinguish between outright fraud, misconduct and negligence. Some examples of the latter include unsuitable investments, failure to disclose important information and overconcentration of investments.
It’s a delicate balance between investor risk and broker advice. Some clients may have a “stop loss,” an order made by the investor, perhaps in consultation with his or her broker, to sell a stock if it falls to a certain level. But while that can stop the bleeding in your portfolio, it could also lead you to sell too many stocks at a lower price, without waiting for a potential rebound.
Examples of broker negligence
“A common example of broker negligence involves failing to diversify and over-concentrating in one type of investment, which can cause financial losses when certain types of investments are in jeopardy,” Weltz Law says. “Similarly, if a broker recommends an investment that poses a higher risk than the investor is comfortable with, it may constitute negligence.”
Still, you may have a case. In many cases, an investor harmed by such acts will have a claim against the broker and firm, the law firm adds. “If an investor suffers substantial losses because their broker failed to sell an investment in a timely manner, or because the brokerage firm didn’t warn the investor to take action to correct an issue, it can be considered negligence as well.
Most investment contracts include an arbitration clause. Finra, and the Securities Industry and Financial Markets Association (Sifma), a trade group representing securities firms, banks and asset managers, argue that arbitration saves all parties valuable time and money, and helps facilitate smaller claims from retail investors. A satisfactory outcome is not certain.
You could win your case and still wish your broker had never sold.
