UK EXITS EU

Britain’s historic decision to exit the European Union has left global markets uncertain, leading to disruption and losses across Europe and the United States. Investors, concerned the fall out from the UK’s exit could potentially lead to a financial crisis have begun to pull money out of the market. The morning following the Brexit vote, the British Pound dropped to its lowest level in more than 30 years, and U.S. and European markets were down more than 4% in a single day.

As an investor, one question you should be asking is “did my financial advisor properly prepare me for this outcome.” If you received a call this morning from your financial advisor regarding new strategies in light of Brexit, you are receiving that call far too late.

In the wake of the global reaction, and the potential for massive disruption in financial markets, many investors may wonder whether losses suffered in the wake of this event could have been avoided. As we initially wrote in the article “Are My Losses the Result of the Market, or Somerthing Else?” [Note: Please place a hyperlink here to the original blog], the vast majority of losses suffered by investors during a market downturn are just that—the result of a market correction. However, there are times when losses stem from something else entirely — broker-dealer misconduct. We again list below some of the common forms of broker-dealer misconduct which may give rise to legal action by an investor against their broker-dealer.

1. Unsuitable Investments: Broker-Dealers have a duty to ensure that each security they recommend and sell to you is suitable in light of your investment goals and investor profile. For example, a high-risk/high-reward investment may be inappropriate for you if you are a conservative investor, or if due to your age or an upcoming need, you have a short time horizon. Just as importantly your broker-dealer has a responsibility to ensure that the investments they offer are suitable for anyone. In other words, did your broker-dealer conduct adequate due-diligence into the securities they offer for sale? Often, fraudulent investment products will reveal themselves during a market downturn. As investors seek to liquidate their investments and look for safer options, paper “gains” may become real losses.
2. Over-concentration: Broker-Dealers have a duty to ensure that your account is properly allocated among types of investments (eg. equities, income producing investments, etc.), investment classes (eg. growth stocks, value stocks, etc.) and sectors (eg. energy, technology, financial services, etc.) when recommending investments to you and providing you with financial advice. Is your account properly allocated or do you notice that an unusually high percentage of your investments are in a single class of investment? A properly diversified portfolio will not always keep you from suffering losses, but it can help to ensure that your portfolio’s performance is not markedly worse than overall market conditions.
3. Churning: Broker-Dealers cannot simply recommend investments to you for the purpose of generating commissions. Is there a purpose to the investments sold to you? Does it seem as if the level of activity in your brokerage account only occurred for the purpose of creating fees?
4. Fraud/Misrepresentation: Did your Broker-Dealer make false statements to you when recommending the sale of a security which has now suffered significant losses? Is money missing from your account? These and other activities are signs of fraud and misrepresentation and may give rise to a claim against your broker-dealer.

It will be some time before we fully understand the impact of the UK’s exit from the EU, and losses you suffer may only be normal market losses. However, if you suspect that broker-dealer misconduct may have a role to play in your losses or are simply unsure, seek the assistance of a trusted professional who can help you answer your questions. The most important thing you can do is seek out information and keep yourself fully informed regarding your financial accounts.

Rob Linkin is a partner at Duggins Wren Mann & Romero, LLP, a full-service law firm located in Austin, Texas. Rob represents investors and victims of investment fraud and broker-dealer misconduct. If you believe you have suffered losses as a result of broker misconduct, please contact us to discuss your rights. Rob can be reached at (512) 744-9300 or at rlinkin@dwmrlaw.com.