Did your broker misrepresent investment information?


You trusted a broker to manage a portion of your money, hoping to increase your savings before retirement. However, something does not seem right. They lost a large portion of your investment, but they did not give you a satisfactory answer as to why. It may be time to take a deeper dive into your investments, and make sure that everything is in order.

When a broker loses a substantial amount of what you believed to be a relatively safe investment, check into the possibility of misrepresentation.

What is broker misrepresentation?

Misrepresentation occurs when your broker provides you with misleading investment information. To qualify as misrepresentation, the broker must deliberately falsify material facts about the investment or withhold key information.

The majority of misrepresentation cases involve low-priced, speculative securities. These securities are inexpensive because they are high risk, and there is a good chance that the investment could go south. Brokers buy speculative securities betting that the investment will do well. If it does, the earnings are high. If it does not, you lose your money.

How can you detect misrepresentation?

Your broker will not want you to know that they misrepresented your investment. Therefore, conduct research either on your own, or with another professional, and determine whether the broker’s investment analysis matches your own. Document information that contradicts your broker’s advice. The stock market changes overtime, so look for market analysis from the same time period as their initial recommendation.

How can you avoid broker misrepresentation?

  • Research your broker before choosing one. Ask friends and family about their brokers. Are their brokers transparent? How have their recommendations performed? Once you have a broker’s name in mind, research them online and see what kind of information you find.
  • Ask for additional information. When your broker makes investment recommendations, ask for the reasoning behind their choices. Have them send you their recommendations, with support for each. You want to have their recommendations in writing in case you ever need to challenge their actions in the future. What they initially say should match what they say happened one year later.
  • Do your research. Your broker is the financial expert, but you should not be in the dark. Keep up-to-date on different investment strategies, and how different stocks are performing. If you have any questions, discuss them with your broker, a knowledgeable friend or other trusted financial source.

What should you do if you think that your broker has misrepresented information?

If you look into your investments, and your understanding does not match what your broker told you, take note. Collect your research findings, and any past communication you have had with your broker. Consider contacting an attorney who can advocate on your behalf. It can be daunting to challenge the legal and ethical actions of an experienced professional, and you should not have to do it alone.