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How to Vaccinate Your Practice Against Lawsuits

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What You Need to Know

  • Clients could blame you when they suffer losses.
  • Good recordkeeping can help.
  • One possible defense: Avoid taking on drama-prone prospects.

Lawsuits can happen to any financial advisor or agent. You must have a plan in place that makes you a less desirable target.

In 2019, the Financial Industry Regulatory Authority received well over 2,900 investor complaints. Of those, 854 resulted in disciplinary actions and over $39 million in fines. A significant number wound up as lawsuits.

There’s no reason to think these numbers will go down in the wake of the COVID-19 pandemic and ensuing financial turmoil.  Because the pandemic and its’ accompanying restrictions have lasted far longer than expected, there has been a spike in lawsuits of all kinds, including employment discrimination, eviction lawsuits, and actions against financial advisors and agents.

Fear, uncertainty, and loss of income can result in desperation, especially among those who have lost paychecks. When faced with such losses, even your most reasonable, intelligent clients could blame you when they have losses. Please don’t assume that because a client thinks you walk on water right now, they will always do so.

Since you work in financial services, you already know that you should not engage in unauthorized trading, forge signatures or documents, churn policies, or co-mingle your clients’ money with your own. However, there are more subtle things you must do to make your practice less attractive to lawyers.

For five ideas, see the slideshow above.

There are many other best practices to consider as you seek to make your business more lawsuit resistant.  That’s why it’s a great idea to spend some time with your legal advisor discussing this matter and developing a sensible strategy.

Your attorney can help you identify weaknesses in your procedures that could lead to lawsuits and give you other ideas to make you less of a lawsuit magnet.


Dustin SettleDustin Settle is a retirement planner with P.A. McGavick & Associates LLC.

(Photo: sirtravelalot/Shutterstock)