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Sue investment manager?

Chris Farrell May 5, 2010

Question: I have lost lots of my retirement in the stock market. I entered believing as the representative led me to believe. I entered through my bank’s investment arm which is separate from banking services. But I was told my investments would be managed by five managers and this led me to enter the most aggressive stock fund. Now that they have lost most of my investment and rewarded themselves, I want to know if I can sue for failure to exercise fiduciary responsibilities by these managers or fund. I would also like to know where to go to find lawyers that fight these institutions? There was a lawyer advertising on television but have not seen him lately. Do you know of any lawyers?? Cyril, Cleveland Heights, OH

Answer: Taking a big hit with your retirement money really hurts. No wonder you’re upset. I would be in your circumstances.

That said, in many cases professional money managers investing your money poorly isn’t sufficient grounds for suing, let alone winning a case. It’s a good reason to take your business elsewhere.

You’ll face an uphill climb trying to successfully sue a bank’s investment arm for bad performance (or a mutual fund or a securities firm for that matter).

Now, complaints about investment performance are filed all the time. The ones that tend to succeed often involve misleading disclosure of the risks, putting someone into an inappropriate investment to pocket a steep fee, and churning an account to generate high commission income. There are also cases involving outright fraud and malfeasance. Those cases often become class action lawsuits. But that doesn’t seem to be your allegation.

What can you do? There are several steps to take. First, if you haven’t already done so I would contact management and lay out your complaint. Remember, you’re the customer and management would like to keep your business. If you have a persuasive case they may rectify the situation–at least somewhat.

I would seek legal advice. You’re right about that. An attorney specializing in securities law will be able to quickly tell you whether you have a case or not. A lawyer will also explain to you how arbitration and mediation work when filing a complaint if that turns out to be a better route for you.

How to find an attorney? I wouldn’t go with late night cable TV ads. (That’s a general rule for anything financial.) Instead, if you have a relationship with an attorney you respect for other reasons–perhaps from estate planning or buying a home–I would contact that lawyer and ask for a recommendation. You can also find attorneys in your area through the search engine of the American Bar Association and the Public Investors Arbitration Bar Association.

A brief overview of the process of complaining about investment management is offered at the website of the Financial Industry Regulatory Authority, Inc. It’s the main industry regulator.

Has anyone reading this post sued a professional money manager or gone to mediation or arbitration. What was your experience? What did you learn? Any suggestions for Cyril? Thanks.

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