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I have $1.5 million in stocks and bonds. I asked my broker to convert my bonds to cash. He didn’t and my portfolio fell by $100,000. Can I sue?


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“The CEO of the company admitted in a company newsletter that they had made a mistake.” (Photo posed by a model.) – MarketWatch photomontage/iStockphoto

Dear Quentin,

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I have a $1.5 million account with one of the major investment managers in the United States. In the fall of 2021, the stock market was weakening and the Federal Reserve was projecting that its benchmark rate would increase significantly from zero in the following months.

I contacted my account manager and asked what they were going to do in response to this news. I told him that I believed they should sell my investment in bonds and convert it to cash. I also suggested that the company liquidate some growth stocks and either keep the proceeds in cash or invest it in value stocks.

This counselor told me that the company does not react to this kind of news for at least six months to ensure that it is a real trend. He also stated that they do not invest in bonds to make money. He said they only invest in bonds to reduce volatility.

He followed this up by saying that the company did not think the Fed would raise the rate from zero to the then-projected 2.8% by the end of 2023. As an aside, they said, they generally do not invest in value stocks, only growth stocks.

The company did not follow my advice and within eight months, the Fed had raised its benchmark rate. My portfolio of bonds dropped in value by over $100,000 and my stock portfolio fell by $200,000. The CEO of the company admitted in a company newsletter that they had made a mistake.

I want to sue my counselor for negligence. What do you think?

Disgruntled Investor

“The company did not follow my advice and within eight months, the Fed had raised the Fed rate and my portfolio of bonds had dropped by over $100,000 in value.” – MarketWatch illustration

Dear Disgruntled,

The key words in your letter are “suggest” and “advice.”

You had a conversation with your broker about what you would like to happen with your portfolio, but that is different from giving them an order to sell. Any investment in a stock has an element of risk, and the S&P 500 SPX, Dow Jones Industrial Average DJIA and Nasdaq Composite Index COMP all declined significantly during 2022. The burden of proof would lie with you if you were to sue your financial adviser. It is not clear that he refused an order.

According to the Texas-based Forman Law Firm : “Generally, brokers and other financial professionals have a duty to follow your instructions regarding the entry and execution of orders. A failure to follow your instructions, both as directed and in a timely manner, is a violation of industry rules, and may even result in a breach of the broker’s fiduciary duty to you.”

Fiduciary duty

It continues: “While there is some debate about whether a stockbroker is a fiduciary for the entire broker/investor relationship, depending on the facts and circumstances, the law in most states is clear that a broker owes you a fiduciary duty from the time you give or authorize an order until the execution of that order. If you incur financial harm due to your broker’s failure to follow your instructions, you are entitled to seek damages, fees, and costs stemming from those losses.”

Bottom line: “If you give your broker an order to buy or sell a specific investment, and the broker fails to timely submit that order or fails to submit the order with the correct terms — price, number of shares, type of order, market order, limit order, good til canceled — the broker violated his or her duty to you,” the law firm says.

Again, the key word here is “order.”

You generally only lose money on bonds if you sell them early. In that regard, your adviser was correct, but if you had invested money in, say, an SPDR Long-Term Treasury ETF SPTL, and sold it at the end of last year, you would have in fact lost a considerable chunk of your original investment. The long-term Treasury market peaked in August 2019. Since then, as Mark Hulbert recently reported , the SPTL ETF has produced a 10.1% annualized loss and Vanguard Long-Term Treasury Index ETF VGLT had a 10.9% annualized loss.

Not all money managers are fiduciaries — that is, professionals who have to act in their client’s best interest under the Investment Advisers Act of 1940. Find out whether your adviser is a fiduciary — rather than, say, a broker-dealer — and whether he’s a member of the Financial Industry Regulatory Authority. Certified financial planners have similar codes of ethics. You could report this to your broker’s manager. Most brokerages have a compliance officer.

‘Counselor’ versus ‘adviser’

MarketWatch columnist Phil van Doorn also has some concerns about your interpretation of events, particularly your use of the term “counselor” rather than “investment adviser.” He assumes you mean an investment adviser working for a brokerage firm. Your adviser — who you refer to as a “counselor” — told you that his firm “does not react to this kind of news for at least six months to ensure that it is a real trend.” Van Doorn says this too does not appear, at face value, to constitute a refusal.

“He may have been referring to a strategist or group of strategists working for the firm who share opinions about asset allocation in general, but not about your account in particular, especially if you had given your adviser an order to trade securities,” he says. “The same applies to the investment adviser’s general comments about how high his firm expected interest rates to rise, or the firm’s philosophy on growth or value stocks.”

“You seem to have asked your investment adviser what his firm was going to do in response to the expectation that the Federal Reserve would increase the federal-funds rate,” he says. “A brokerage firm isn’t going to do anything with an individual’s investment account in response to an expected macroeconomic event unless the brokerage client has requested that type of investment-management service.”

You say your broker told you that “they do not invest in bonds to make money.” Van Doorn suspects you may have misunderstood him. “In general, the objective of a bond investment is income,” he says. “Yes, a bond’s market value will move in the opposite direction of interest rates after you buy it. But if you hold the bond until maturity, you will receive its face value, barring a default.” (It’s not clear from your letter, but if you ceded control of your financial decisions to an adviser and signed up to a particular investment strategy, that would further weaken your hand.)

It seems that your adviser’s firm has already acknowledged they made some bad calls. Even Warren Buffett has made mistakes . Most investment contracts include an arbitration clause for resolving disputes such as the one you describe. The Financial Industry Regulatory Authority and the Securities Industry and Financial Markets Association, a trade group representing securities firms, banks and asset managers, argue that arbitration saves all parties valuable time and money and helps facilitate smaller claims from retail investors.

It’s OK to make a bad call. It’s not OK to refuse to put in an order. This, however, sounds like a failure of communication rather than an actual refusal by your broker.

You can email The Moneyist with any financial and ethical questions at, and follow Quentin Fottrell on X, the platform formerly known as  Twitter.

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

My husband and I divorced and bought separate homes. Now we’re back together and thinking of commingling our assets. Is that wise?

My estate is worth millions of dollars. How do I stop my daughters’ husbands from getting their hands on it?

‘It was a mistake’: My father set up a revocable trust, leaving everything to my stepmother. She’s cutting me out completely. What can I do?

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