Is my account down because of the market, or is it something else?

In rough economic times such as these, many investors have seen their accounts suffer large losses. As New York securities lawyers, we’ve seen some investors’ accounts lose 25-50% over the course of a few months or years, while others have seen their accounts lose such large amounts seemingly overnight. A large drop in account value is unsettling for every investor, but for those nearing retirement or senior citizens living off their savings, large losses are extremely alarming and can be devestating. Regardless of their age or situation, investors who have suffered large losses often find themselves asking the same questions, “Is my account down because of the market, or is it something else?”

stock down.jpgInvestors who are approaching retirement or who are already retired are typically risk-averse – i.e. willing to accept lower returns to avoid the possibility of devastating losses. However, many of these investors find themselves being sold on “sure thing,” “big winner,” “can’t lose,” and “have your cake and eat it too” investment strategies that seem, and in fact are, too good to be true. Those who buy into these false promises can find themselves unknowingly invested in products and strategies that are much riskier than what they wanted, and most importantly, what they should have been invested in. Unfortunately, good times in the market can hide these risks from the average investor. It is not until a downswing in the market that these risks come to light, often taking the form of large, unexpected and crippling losses.

Many people who want to invest seek out professional guidance in handling their savings and their investments because they feel safer in the hands of professionals whom they trust and whom they believe are looking out for their best interests. Unfortunately, this trust can be abused and investors often find themselves in accounts that are not suitable for their financial needs and the amount of risk they are willing to take with their investments.

Investors often place complete trust in their financial advisor and follow all recommendations made to them, believing that their financial advisor has their best interest at heart. Regrettably, this is not actually the case and all too often, these people can find themselves in a situation where they do not even know what products they are invested in, until it is too late and they are financially devastated.

When confronted about large losses many brokers will simply blame it on the market, telling clients that “there’s nothing I can do,” “we’ll have to just ride it out,” “it’s just the way the market is sometimes,” or “it will bounce back, I promise.” However, this is not always true. Sometimes, investment losses can be simply due to unfortunate swings in the market, but a properly diversified portfolio with the appropriate risk level should not experience such huge, devastating losses. These sudden, large losses may actually be the result of unsuitable investments or broker misconduct, including violations of state and federal law and SEC and FINRA Rules.

Other factors, such as a lack of diversification and an over-concentration in one type of investment or in one industry can also lead to losses. Trading on margin is also a risky strategy that many advisors portray as “safe” and “common practice” to their clients. More advanced investments such as ETFs and derivate products, like structured notes and mortgage backed securities, are also a big problem since they are often sold to investors who do not understand them or in some cases, do not even know what they are.

These sorts of investments, when unsuitable or improper for a customer, are barred from being recommended in order to protect investors from self-interested brokers and financial advisors. Investors who have been misled and suffered losses as a result do have rights and may be entitled to be reimbursed for some or all of the losses they have suffered.

If you or a family member has suffered losses and suspect that it may be due to broker misconduct, contact the securities and investment fraud lawyers at Malecki Law at (212) 943-1233 for a free consultation and portfolio evaluation.