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Updated by Jacob Zamansky on Apr 03, 2020
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5 Signs You May Be Entitled to Compensation for Investment Losses

All investments carry risks. While some investments are less-risky than others, any time you rely on market factors, there is a chance that you will experience investment losses.

Unfortunately, when talking about investment risks, in today’s market, it is also necessary to talk about the risk of fraudulent investment losses. Investment fraud is a very real concern, and every year investors lose billions to investment scams and various forms of advisor and broker fraud. While legitimate losses – those resulting from prudent investment decisions based upon the investor’s risk profile – generally cannot be recovered, in many cases individual investors will be entitled to financial compensation for illegitimate losses suffered at the hands of high-pressure salespeople and even trusted advisors.

If you have experienced losses in your investment portfolio that do not appear to be tied to market factors, here are five signs that you may be a victim of investment fraud:


You Don’t Understand the Losing Investment.

Investment advisors owe a duty to provide investors with material information about their investment recommendations. If you do not understand the asset in which your money was invested, this could mean that your advisor failed to meet his or her fiduciary responsibilities.


Your Portfolio Does Not Align with Your Risk Profile.

Under the governing rules of the Financial Industry Regulatory Authority (FINRA), investment advisors are required to provide “suitable” investment recommendations. This means that their recommendations must take into account the individual investor’s age, financial circumstances, tax status, investment experience and objectives, and risk tolerance. If you expected your money to be invested in low-risk assets and it wasn’t, this could provide grounds to seek a financial recovery.


You Did Not Authorize the Investment or Sale.

FINRA’s rules and the guidelines promulgated by the Securities and Exchange Commission (SEC) prohibit advisors and brokers from making trades without investor authorization. Unless you explicitly granted your advisor or broker “discretion” or “trading authorization” for your account (in which case he or she still has certain legal obligations), you should not see any unauthorized trades on your account statements.


Your Portfolio was Not Adequately Diversified.

Investment advisors and brokers must also take appropriate steps to ensure that their clients’ investments are adequately diversified. Failure to diversify (referred to as “overconcentration”) will often justify a claim for recovery of investment losses. This includes not only overconcentration in individual investments, but in particular industries and product types as well.


Your Broker or Advisor is Constantly Buying and Selling.

While you expect your broker or advisor to take an active approach to managing your portfolio, there are limits to what constitutes prudent trading on an investor’s behalf. Excessive trading is a red flag for investment fraud, and it is a method some brokers and advisors use to rack up transaction fees at their clients’ expense.