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Street Level: The Blame Game Continues

street level, registered rep, opinion, geracioti

Now that we're entering the fourth year of a painful downturn, retail investors (some of whom only knew the market as a sporting event in which the home team always won) are coming out of the woodwork to sue financial advisors for their losses.

Not all these claims are unfounded. I am sure there are some pretty rotten advisors out there, who either didn't understand financial planning or the Prudent Man concept. And, like the clients, some just got caught up in the buying panic and provided really bad advice. Those reps deserve to be nailed for financial malpractice.

That said, the sheer volume of recent complaints suggests that this is not strictly about ridding the industry of those bad apples. The Dispute Resolution unit of the NASD says that there were nearly 1,500 cases filed in the first two months of 2003, a 22 percent rise over the same period a year ago. And in 2002, there were 39 percent more arbitration cases against brokers and their firms than in 2000. Indeed, 2002 was a record for new case filings. During the bull market, the most common complaint against brokers was churning. Now, it's suitability or the lack thereof.

You may ask yourself, “Are all stock losses cause for legal action?” No, but you can bet that many investors are taking a hard look at how their money was invested during the late 1990s. There are plenty of plaintiff attorneys out there to point the way. Then there's the Investor Justice Project at the University of San Francisco, where law students, with the help of their professors, are representing investors for free.

Clearly, many investors feel that someone must pay for the holes in their portfolios. And why not you and your firm? After all, the odds are pretty good: a little more than half of the complaints brought against advisors last year resulted in a payment to the client.

Again, I agree: Let's bust the scammers, the incompetent, the foolhardy and the others who tarnish the reputation of all honest reps. But lay off the advisors who did their jobs — who tried to get clients to think beyond the buying frenzy of the late 1990s.


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