Page Perry has recently represented several clients who were told that their money was being invested in a “system” that was designed to minimize their exposure to downward movements in the market while maximizing their share of market gains. In one case against a major Wall Street firm, our clients were told that they would experience most of the upside of favorable market movements and only a small part of any downside. Unfortunately, when the market tanked in 2008 the clients’ portfolio did the same. According to Page Perry partner Craig T. Jones, “if you are being sold something that sounds too good to be true, it probably is.”
If your broker has told you that he has a sure-fire system for making you money, be careful! While there are undoubtedly many sound investment strategies in which trades are directed by computer algorithms created by stock market geniuses, there is a good chance that the broker who is trying to sell that product to you is not the genius who created it. While the system he is promoting may have worked for other investors in other market conditions for purposes of their investment objectives, that does not necessarily mean that the system will work for you. Like any investment product or strategy, a broker cannot legally recommend it to you without first making sure that it is suitable for your investment objectives that you know all the risks. That requires not only knowing and understanding your objectives, but it also means knowing the product. “A broker should never recommend a product that he or she does not understand,” says attorney Jones, “which means the broker has a duty to research the product and make sure that it is suitable for the client and that you are informed of all the risks.”
Brokers who sell systems do not always do the necessary homework. By not researching what they are selling, brokers are prone to make misrepresentations. Without thoroughly evaluating the client and his or her investment objectives, the broker has no way of knowing if the system is suitable for that client or not. Where systems are sold as “one size fits all” strategies, they are inherently unsuitable for many investors. “Rather than selling cookie-cutter investment strategies,” says Jones, “brokers have a duty to tailor their recommendations to the specific needs and objectives of the client.”
Page Perry represents investors in securities industry arbitrations as well as litigation. Based in Atlanta, the firm handles cases all over the country. “If you have lost money because of an investment system or strategy that did not deliver as promised,” says Jones, “we would be interested in speaking with you about your legal options.”