Many investors are enjoying record high returns in their portfolio, however we have hearing from a number of investors whose portfolio’s are not only down, but lost money. In a lot of cases, this is just poor investment choices, but we have been receiving an increasing number of calls from investors that were unaware of the risks and liquidity involved with their investments. So here are 3 reasons why the market is making new highs and your investment portfolio is losing money.
Financial Advisor Fraud or Malpractice
While the majority of financial advisors may add value for their clients in terms of asset management, financial advice, education and planning and in so many other ways, a small percentage of these professionals either due to greed, malfeasance or mistakes, actually do a disservice to their clients. In an overall neutral or positive market, the losses or problems may not stand out to investors, or perhaps there is a plausible explanation. Nonetheless, as Warren Buffet has said, you will only know who is swimming without pants on when the tide goes out.
Don’t wait for the tide to go out on your portfolio. Fraud or malpractice type cases in this area are often handled through a private arbitration customer dispute process administered by the Financial Industry Regulatory Authority (FINRA). These disputes can be addressed privately, often with a confidential document exchange (no depositions) anywhere in the United States.
Just because your overall account has not lost significant value doesn’t mean, for example, that your individual investment in a non-traded real estate investment trust (often referred to as a REIT or non-traded REIT), or a private placement was appropriate. Some common mis-steps in this area include: the NorthStar Healthcare non-traded REIT, and private placement investments in GPB Capital. It is important to note that the structure of many of these investments is not always easy for public investors to determine or understand, in some cases these are sold as income-producing investments, yet in reality the distributions they are receiving are merely a partial return of the investment.
Common issues include unsuitable recommendation, failure to properly conduct due diligence, failure to properly supervise, and material misrepresentations and omissions.
Overconcentration or Lack of Diversification
Some financial advisors simply drop the ball. Perhaps they recommend an individual investment or group of products that are inappropriate (as the example above illustrates), and other times, the wrong investment is recommended and there are no efforts to correct the negligent recommendation. Do you have an asset allocation, concentration, or diversification issue in your portfolio?
Sometimes these issues involve one particular investment position, and other times these issues involve a market sector or an industry sector concentration issue. While most investors are enjoying near record high portfolio values, if your portfolio is not, a closer inspection by an experienced securities arbitration and investment fraud lawyer may be very helpful. Take for example some recent exchange traded funds (ETFs) that may be causing some investors to experience losses despite the overall market conditions.
- Ivy Focused Value NextShares.
- Down (-50% in past 12 months).
- Down (-48% in past 3 months).
- IShares MSCI Argentina and Global Expense ETF
- Down (-26% in past 3 months)
- Global X MSCI Argentina ETF
- Down (-26% in past 3 months)
- ETFMG Alternative Harvest ETF
- Down (-28% in past 12 months).
- Down (-21% in past 3 months).
- AdvisorShares Pure Cannabis ETF
- Down (20% in past 3 months).
- AdvisorShares New Tech and Media ETF
- Down (-52% in past 12 months).
- ProShares VIX Short-term Futures ETF
- Down (-16% in past 12 months).
- Down (-13% in past 3 months).
- VanEck Vectors India Small-Cap Index ETF
- Down (-31% in past 12 months).
- Global X MSCI Pakistan ETF
- Down (-37% in past 12 months).
For the most part, if used properly, mutual funds or ETFs are an effective product to help investor portfolios obtain market exposure while also remaining diversified. If you are reviewing your portfolio and you are noticing too many eggs in one of these baskets (or any basket for that matter), there are many securities arbitration and investment fraud lawyers that will review these issues as part of a free consultation.
Lack of Supervision
Also commonly referred to as negligent supervision. Many financial advisors and broker-dealer firms sell investments to public investor customers often fail to fully disclose the material facts or risks surrounding the specific nature of the products. In an effort to quickly close a sale and earn a commission, they unfortunately over-simplify the explanation and disclosures that investors are relying upon to make their decisions. Sometimes the lack of supervision relates to due diligence efforts, sometimes relates to disclosures, or concentration and suitability of the investment issues. Other times, it can relate to the financial advisors and their internal training and education at a firm where they seem to lack a full comprehension and understanding of the unique nature of the investments they are selling to the public.
Often behind these types of behaviors or mistakes are the conflicted incentives available to the broker-dealer firms and their financial advisors. Investments such as private placements and Non-Traded REITs often include a high commission structure that significantly benefit the broker-dealer firms and the financial advisors right up front, while leaving the public investor with an unsuitable or inappropriate investment that is poorly explained (at best) and often misunderstood by the investors. Other times, it is not necessarily the incentive, but rather an effort by the financial advisor to try to outperform the competition by a wide margin and in doing so they ignore fundamentals of asset allocation and diversification and at the client’s risk, they recommend placing a bet on a particular company or a particular sector. At each step in the process, the broker-dealer firm has supervisory responsibilities of the financial advisors, the accounts, and the transactions.
How Do Investors Recover Their Losses?
Generally, financial advisor fraud or malpractice will give rise to a number of potential claims or causes of action, and then much may turn on what an investor chooses to do.
In some cases, there are violations of laws, regulations, or even internal rules within the firms where the firm’s own compliance policies and procedures by which its brokers/advisers must abide has been violated. Further, such activities and/or the failure of the firm’s supervision, management or compliance department to properly monitor and supervise the transactions may be negligent as well, thus there are breaches of legal duties owed to the investors involved.
As a result, an experienced securities arbitration or investment fraud lawyer can assist you in potentially recouping losses from a firm by helping you demonstrate that the firm essentially failed to properly establish and/or failed to implement reasonable supervisory procedures, or failed to properly follow-up on red flags.
What Steps to Take to Attempt to Recover Your Losses
First, it is important to contact an experienced securities arbitration and investment fraud lawyer to investigate the details thoroughly. The longer you delay, the more chance there is that a limitations period may expire, or the more likely you are to allow an argument alleging you sat on your rights despite knowledge that something was wrong.
Many investors believe that because they have not sold the underlying investment there is no potential for recovery of any losses. That is not always the case.
You will need to take action. Depending on the facts and circumstances, this could involve filing a customer dispute through FINRA’s Office of Dispute Resolution. Your potential for recovery may be direct against a bad actor, or it could be indirect potentially through the broker/adviser or the firm that he/she worked for during the time of the investment.
While some of the above points may appear simple on the surface, these types of FINRA claims can often involve difficult or complex legal or regulatory issues. To hold the responsible broker or his/her firm liable for your damages, you will need to research the full extent of the potential misconduct or negligence. In most cases, victimized investors actually have several different underlying legal claims, and an experienced securities attorney can assist you in considering all of your potential sources of recovery.
Depending on the facts of your case, your attorney may be able to establish vicarious liability or may be able to hold the broker-dealer firm responsible for its failure to supervise and control their representative.
Contact Our Investment Fraud Attorneys to Discuss Your Case
At Haselkorn & Thibaut, P.A. our top-rated securities arbitration and investment fraud attorneys have extensive experience handling similar cases nationwide. We are ready to help You, call us today to speak with a lawyer at 1-800-856-3352. We are standing by, ready to help you recover your investment losses, or email us at investmentfraudlawyers.com. We typically handle cases on a contingency fee basis, that means we do not get paid unless we recover your investment losses.