I was so mad, because it basically locked in the loss! If I knew they were going to sell, I would have done it in January.


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Question: I am working with a broker. Last year, they had a conference call in January 2022 and they asked all their clients if they wanted to go to cash, because now would be the time. Well, I asked my adviser if I should go to cash and he thought we should “follow the plan.”  So instead of pushing, I said that was OK. Fast forward to June 2022, at the market bottom, they sold to cash. I was not consulted. I was so mad, because it basically locked in the loss! If I knew they were going to sell, I would have done it in January. Any thoughts? What should I do?

Answer: We’re so sorry to hear you’ve had this experience — and what your adviser did is not OK for multiple reasons, including the advice to go all cash and his not even telling you about it. Firstly, “I’m a little alarmed that your broker suggested going to cash at all last January or July or even now, as that’s an extreme response in terms of portfolio management strategy, particularly as inflation was approaching double digits a year ago,” says certified financial planner Curtis Pope. (Looking for a new financial adviser? This tool can match you to an adviser who may meet your needs.)

One thing that stands out to certified financial planner Missie Beach is how your broker would know the right time to go to cash: “Did she have a crystal ball? This is market timing at its finest. Once you exit the market and go to cash, exactly when do you get back in?”

Have an issue with your financial adviser or looking for a new one? Email [email protected].

According to a Fidelity study conducted between 2000 and 2019, investors who stayed in the market for all 5,035 trading days achieved a compound annual return of 5.6%. “However, that same investment would have returned 2.0% had it missed only the 10 best days of stock returns. Further, missing the 50 best days would have produced a loss of 5.9%. How would a broker know when the best and worst days would occur,” says Beach. 

It’s also worrying that your adviser didn’t talk to you about the potential tax implications of such a move. With regards to your losses, the smarter thing would have been to tax loss harvest, which is done in a taxable account. “This involves selling one security to lock in the loss and buying a similar, but not the same, security in its place. This keeps the investor from violating wash sale rules, maintains the portfolio’s allocation and provides valuable capital losses to be used against future capital gains or $3,000 can be used against ordinary income,” says Beach. (Looking for a new financial adviser? This tool can match you to an adviser who may meet your needs.)

What’s more, even “setting the actual advice aside, I’m more concerned that your adviser took full discretion and sold out of everything in your account without having a conversation with you first,” says Pope.

In certain cases, at certain firms, an adviser can have full discretion over the account and can have the ability to trade without approval. “You should start by trying to verify whether or not the account had been set up as a discretionary account. Even if it had been, they probably still should have contacted you since they made such a drastic change to the portfolio strategy and there could have been meaningful tax implications for you,” says Pope. 

For his part, certified financial planner Eric Presogna at One Up Financial says: “If this is a non-discretionary relationship whereby the broker must obtain client consent before placing trades, then it’s a big red flag and I’d consider consulting with an attorney to see what, if any, actions the client is able to take.”

So what should you do now? Your first step should be to call your financial adviser and ask them why they sold at the bottom. “I’d ask how this move was in your best interest and what their plan is to ensure your success in affording the remainder of your life. They shouldn’t be fumbling over their words and they should be able to provide you with a succinct, simple explanation of why they did what they did,” says certified financial planner Blaine Thiederman of Progress Wealth Management.

Discuss this situation with your broker to clarify the details and then file a complaint with their supervisor if you decide it’s warranted. “Generally these sorts of internal complaints are taken very seriously. If you don’t hear back from the firm, your final option is to go directly to FINRA (Financial Industry Regulatory Authority), which will certainly get everyone’s attention,” says Pope. What’s more, it’s possible that your current adviser’s E&O (errors and omissions) insurance would compensate for any gains you missed out on so it’s important to talk with them and ask what they can do to remedy your losses, says Thiederman. E&O insurance offers liability protection from negligent acts claims in addition to errors and omissions that result in financial loss.

It’s possible you may have told your broker something that motivated them to make this adjustment for you and if that’s the case, they likely acted in your best interests. “Listen, take notes on what they told you and have another adviser at another company that’s an experienced wealth manager look over your notes. This is called a free second opinion,” says Thiederman. (Looking for a new financial adviser? This tool can match you to an adviser who may meet your needs.)

Either way, certified financial planner Eric Presogna at One Up Financial says he recommends shopping for an adviser, not a broker, who doesn’t try to time the market and is the one offering advice, not asking for it. “If this is a non-discretionary relationship whereby the broker must obtain client consent before placing trades, then it’s a big red flag and I’d consider consulting with an attorney to see what, if any, actions the client is able to take,” says Presogna.

Questions edited for brevity and clarity.

Have an issue with your financial adviser or looking for a new one? Email [email protected].

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