Investors trust that their financial adviser will correctly and completely present the information they need to make informed decisions about potential investments.
When an adviser purposefully or negligently misrepresents or omits material information about an investment, and the investor loses money as a result, the investor may have a legal claim for their broker’s misconduct.
Material information (or material facts) is information that an investor relies upon to make a decision about whether to purchase or sell an investment.
Examples of material information include an investment’s:
- Risk level
- Potential return
- Transaction fees
If an investor purchases or sells an investment based on an adviser’s misrepresentation of the investment, the investor can argue that had they known of the misrepresentation at the time of purchase, they would not have agreed to it.
For example, if an investor buys stock based on her adviser’s representation that the stock is low risk—but the representation was unrealistic and the stock was highly volatile—the investor may be able to argue that she would not have bought the stock had the adviser truthfully represented the stock’s performance.
According to FINRA, misrepresentation often occurs with low-priced, speculative securities that present increased risk.
Misrepresentation vs. Omission
Misrepresentation can occur not only when a broker makes untrue representations of material facts, but also when a broker omits (leaves out) material facts during the course of selling or recommending an investment.
Not revealing a material fact could be misconduct.
One common type of omission is a broker’s failure to disclose a conflict-of-interest regarding an investment. Not revealing a conflict of interest would violate the investment professional’s fiduciary duty to their client, which requires them to place their clients’ interests above their own interests.
Material omissions also include not disclosing all known investment risks and associated fees.
Elements of a Misrepresentation Claim
You may have a claim for misrepresentation against your broker if:
- You relied on your financial adviser’s advice when purchasing an investment;
- Your financial adviser misrepresented or omitted information about the investment; and
- You lost money on the investment (or have trouble selling it) due to the adviser’s misrepresentation or omission.
An advisor’s misrepresentation can either be either intentional (fraud) or unintentional (negligence).
Level the Playing Field Against the Financial Industry
It can be difficult for an investor to know whether they have been misled about an investment. Taking on the powerful financial industry in securities arbitration is also a challenge.
If you suspect that your adviser made inadequate disclosures or gave you false information, contact our securities attorneys for a free case evaluation.