COVID-19 Market Meltdown May Expose Unsuitable Investments

With the stock market plummeting and the years-long bull market at an end, many investors are feeling some combination of panic, resignation or at the very least, deep concern.

Many investors, when they see significant losses in their portfolios—whether realized or unrealized—want to take action. And for some investors, that desire to act includes working with an attorney to determine whether they have good legal claims to recover some of the losses they have sustained.

If your financial advisor recommended a portfolio that did not track the investment objectives, risk tolerances and time horizon that you communicated, then that portfolio may be deemed “unsuitable.” And investors are often entitled to recover damages when the portfolio that sustained the losses was unsuitable. The concept of suitability is defined by FINRA Rule 2111 and is further explained in this article from FINRA’s website, “Suitability: What Investors Need to Know.”

A classic example of an unsuitable portfolio would be if a financial advisor recommended a portfolio for a retiree that included full or near-full exposure to the equities markets, rather than one that had some equities exposure, but also had investments in municipal bonds, corporate bonds, preferred shares or some other more stable, income-producing investment products. In that case, if the investor suffered a thirty-percent decline in his or her portfolio, at least some portion of that loss would likely be recoverable.

Similarly, if a financial advisor recommended investments that were either complex or carried with them unexplained risks, and the market crash we are experiencing caused those products to crater in value or fail altogether, the investor may well have a good claim to recover those losses. From past market crashes and recessions, we have seen examples of this in investments called “structured products.” They often carried names that promised safety and security and yet really were no safer than the unsecured corporate debt that comprised their value. The current meltdown is nearly certain to expose similar investment products, whether their performance was tied to some underlying asset or to market volatility.

Keep in mind that not every market loss presents an avenue for recovery through a legal claim. If you closely and carefully consulted with your financial advisor and he or she recommended a portfolio that faithfully tracked the investment objectives, risk tolerances and time horizons that you agreed upon, then you likely do not have a claim, even if your losses are significant.

If you have suffered losses and believe they may have been caused by your financial advisor recommending an unsuitable investment portfolio or complex investment products with hidden risks, please contact a securities attorney at The Galbraith Law Firm. Call 212.203.1249 or email kevin@galbraithlawfirm.com for a free confidential consultation regarding your legal rights.