Question

What options do I have in Colorado if my stock portfolio did not perform as well as my stockbroker promised?

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Answer

Investment is a risk. Every investor knows and accepts that fundamental reality, but the decision to take a risk doesn’t happen in a vacuum. A savvy investor relies on research, intuition, insight and advice to make the right decisions for their portfolio. However, when advice from a stockbroker or financial adviser turns out to be misguided, and you lose your money, there are recourses you can take. Your options are dictated by the relationship you had with the person who advised you.

Advisory or fiduciary?

There are two basic types of duties you can have with an adviser in this capacity: advisory and fiduciary. When someone acts in an advisory capacity for you, they are simply there to provide advice. You can take it or ignore it, but the choice to take that advice and act on it is yours.

A person advising you in a fiduciary capacity, or rather someone with a fiduciary duty to you, is under a completely different standard than an adviser. A fiduciary relationship comes with an understanding that they would act for you. They can and do act on your behalf in a variety of investments, and when they do them they must have:

  • Care: They are legally required to educate and inform you of any relevant laws/issues.
  • Competence: They must be accredited and must have completed required education and training.
  • Loyalty: They must remain loyal to you and your interests.
  • No conflict of interest: A fiduciary must have your best interests in mind in your dealing, and they cannot do that if they represent you and the company issuing the

This is all part of the basic understanding of good faith dealing. Anyone with a fiduciary duty to you, cannot cheat you. This includes a requirement to charge fair market prices for something and not charging you if you did not order something.

Essentially the difference boils down to this. You have to trust you’re the people giving you advice. You can trust someone who is just an adviser as much as you would trust anyone trying sell you on an idea. A fiduciary you must trust as you would yourself with your own care.

Breach of duty

When someone breaches a duty to you, that means the person acting on your behalf has violated the trust you put in them. With a financial adviser, a person representing an entity such as a bank or an investment firm, you can trust them to offer you a financial product. They act under a “suitability standard.” Whether you take them up on that will be your decision. This product may not even be in your best interest as there is no expectation of fiduciary duty for someone acting as a financial adviser, unless it is explicitly stated that they are a fiduciary adviser. 

A fiduciary duty, simply stated, is the legal standard (and understanding) that someone has a relationship of trust with someone. A fiduciary duty is the highest level of trust and the highest level of duty you can have in financial dealing settings. If they do not take all the care and consideration with your assets that they would with their own, then they are in breach. If they act against your best interest or have a conflict of interest, they are in clear breach. If they make a mistake, they may also be in breach.

What you can do

A breach of duty is a breach of trust. If you are given investment advice from someone without a fiduciary duty to you, then your options are limited. You may be able to pursue them if you lose your money in an investment. These are called actual damages and with them you’d be going after what you put in. Here caveat emptor works both with and against you. Since you made the decision, you really cannot gain compensation for anything beyond your investment. The best you can do is recover your initial investment.

However, in the case of a breach of fiduciary duty, the door opens to much greater damages, such as:

  • Actual damages: Your initial investment
  • Special damages: Money you may have been able to earn in a different situation
  • Punitive damages: Additional payment to punish the party that breached their duty

Because the level of trust was so much greater, because the damage may be so difficult to come back from, the potential outcome of any litigation would be so much greater.

Securities litigation representation is essential

When you have been promised something by an adviser, you have to trust them. How much you trust them, how much you invest and the outcome matter. If you lost a significant amount, you deserve representation that not only understands the subtleties of the legal situation but also has the experience and toughness to get results.

Disclaimer: The answer is intended to be for informational purposes only. It should not be relied on as legal advice, nor construed as a form of attorney-client relationship.

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