Being prepared for problems can help you resolve them.

Whenever money is involved, things can go wrong. By knowing the potential for problems in the relationship you have with your advisor, you can minimize the hassle of dealing with them if they do occur.

Getting things straight

When you and your advisor disagree about investment decisions, there are two questions to resolve before you go any further:

  • Have you been misled by the information you’ve been given, or did you misunderstand it?
  • Did your advisor misinterpret your wishes, were they ignored, or was there an honest error?

If it was your fault, you’ll know better next time. But if the problem is with your advisor, you should act to correct it as quickly as possible.

Taking note

Keep track, in writing, of all the conversations and correspondence with your financial advisor about investment decisions. If your relationship goes sour, you’ll have material to bolster your claims. It’s easier and more credible than a paper trail.

If it’s broke

Mistakes do happen when you give buy or sell orders. For example, your stock broker might buy a different stock from the one you intended. Or the money in a mutual fund could be incorrectly transferred. If you catch the error and report it promptly, it may be corrected, or busted.

You should call your advisor or broker as soon as you’re aware of any problem, ask what happened, and say you want it resolved. That may be all you need to do, especially if it was a misunderstanding. It’s always smart, though, to write a letter confirming your call and indicating the resolution that you’ve agreed to.

If the problem isn’t settled promptly, write to your advisor’s supervisor. Explain exactly what went wrong and how you would like it corrected. The larger the amount of money involved and the more serious the problem, the more likely it is you may have to seek an outside remedy.

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Send Request

If your complaint isn’t handled promptly, you can go to your state’s securities division. If that doesn’t resolve your problem, you may be able to use mediation and finally binding arbitration, where a panel of experts will rule on your claim. If you have an unresolved problem with an insurance agent, begin with the agent’s supervisor.

If unsuccessful, contact your state’s insurance commission. If enough money is involved to make it worth your time and expense, you can take a case to court. But before you decide on arbitration or a lawsuit, you should get good legal advice from a specialist in securities law.

Binding arbitration

Arbitration means that you present your complaint, either on your own or with a lawyer’s assistance, to a panel of arbitrators, or decision-makers, put together in most cases by FINRA, the Financial Industry Regulatory Authority.

The arbitrators use the evidence you and your advisor present to make their decision, which is based on their sense of fairness rather than on legal precedent. In most cases the decision is binding, which means it can’t be appealed. If you’re bringing a case, it pays to be prepared with all the supporting documents you can muster. The better your evidence, the stronger your chances of prevailing.

There’s a modest fee for arbitration hearings, usually based on the amount of the claim you’re making.

Resolving Problems

A rare breed of advisor

Finance, like every industry, has a few wolves in sheep’s clothing who get lots of bad publicity. Chances are you’ll never encounter them, but it’s still smart to know the ways they could deceive you, such as:

  • Lie about the risks in particular investments
  • Buy and sell without your permission
  • Sell phony or unregistered investments (which you’ll know only when you try to sell them later on)
  • Steal from your account (which you’ll only know if you read your monthly statement carefully)
  • Provide false information about pending lawsuits or other legal matters

Preventable problems

While it doesn’t happen often, sometimes investors have to deal with problems created by their advisors. You can usually avoid these situations, especially if your advisor knows you’re paying careful attention to detail and asking hard questions. That’s why you should keep your eyes open for these three warning signs:

  • An advisor who urges you to make unsuitable investments or put most of your principal into high-risk stocks or bonds. Although knowing what’s unsuitable means being aware of what each type of investment is designed to do, that shouldn’t stop you from questioning your advisor’s recommendations.
  • An advisor who buys and sells too frequently churns your account. It’s hard to say what’s too frequent, but if you’re paying as much or more in commissions as you’re making on your investments, that may be a sign to act.
  • An advisor who urges you to buy extensively on margin by borrowing against your account assets.

How To Resolve Disputes With Your Financial Advisor? by Inna Rosputnia

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