Most of us, even experienced investors, rely on our financial advisors for information and guidance. We pay these experts to follow the markets and give us practical and carefully tailored advice to maximize our return and minimize the risk of loss.
Following a financial advisor’s opinions is not a guarantee of success. But wealth generation can be impossible when your advisor lies to you or puts you in high fee products. This breaking of trust and your advisor’s duty toward you to act in your best interests can cost you your entire savings. In legal terms, when a financial advisor deceives a client causing loss it is called a material misrepresentation.
The standard for defining ‘material misrepresentation’
Federal securities law defines a misrepresentation as “material” when “a reasonable investor would have regarded what was not disclosed to [them] as having significantly altered the total mix of information [they] took into account in deciding whether to buy or sell the security.” Whether a lie or failure to disclose something was material depends on the circumstances as they existed at the time the false statement or omission was made.
Whether a misrepresentation is material depends on the circumstances of each particular claim. As an example, advisors must disclose every piece of information you would need before deciding how to invest, such as the investment’s business goals, recent history and expected future gains or losses. Without this information, you cannot make an informed decision and could lose your investment as a result.
Exposing wrongdoing, gaining compensation
Whether your advisor purposely misled you or was simply negligent does not matter. A material misrepresentation that leads to damages can be grounds for litigation. You may be able to recover your losses and expose the advisor’s mistreatment. This area of law can be very technical and require advice and support from an attorney who practices in this particular area of the law.