Many retirees across the country who depend on their 401(k), IRAs and retirement savings to support them following decades of hard work are discovering that their nest eggs have been decimated by the decline in the stock market.
While this particular market crash was precipitated by the Coronavirus (COVID-19) pandemic and the overseas oil production war, every stock market crash is always precipitated by something. It was the Black Monday crash in 1987; the bursting of the dot-com bubble in 2000; and Wall Street’s subprime lending crisis in late 2007.
We obviously cannot predict what specifically will cause a market decline or when precisely it will happen, but everyone in the financial services business knows that markets do decline and that market volatility, even abrupt and severe, is normal and expected. Indeed, with the unprecedented run-up in the markets from 2009-2019, many financial experts recently predicted some type of market correction.
Back in 2014, about five years into the most recent bull market, I published an article titled, “Is the Bull Market Covering Up Losses Caused by Stockbroker Misconduct?” I referenced the analogy of high tides in the oceans and bull markets. The article started,
CALM SEAWATER AT HIGH TIDE UNDOUBTEDLY COVERS UP MILLIONS OF FOREIGN OBJECTS ON OUR BEACHES. MUCH LIKE THE CAMOUFLAGE A HIGH TIDE OFFERS, INVESTORS’ DAMAGES RESULTING FROM THEIR STOCKBROKER’S MISCONDUCT ARE OFTEN CAMOUFLAGED DURING A BULL MARKET.
That same year I was invited to speak at a conference at New York University Stern School of Business titled “Getting Personal with Securities Litigation in 2014.” The focus of my presentation at NYU was my concern that the bull market was covering up misconduct by negligent financial advisors. Having represented hundreds of individual investors in claims against their financial advisors after the crashes of 2000 and 2008, I knew that underneath the high tide of the bull market, the trash of unsuitable investments or other misconduct waited to be exposed.
When markets go up for extended periods of time, it is difficult for most Main Street investors to know if their financial advisor is implementing a well-diversified investment portfolio that is allocated over a broad base of asset classes. It’s hard to tell because in a bull market most everything is going up in value. The investors rely on the touted expertise of their financial advisors to appropriately build and manage the portfolio as they promised, and most individual investors who rely on their trusted advisors focus on the bottom right of the first page of their account statements – did it go up or down? Is it green or red? When the value goes up, or if it doesn’t materially decline, the investor is happy, and the advisor takes all the credit for the portfolio gains.
When the tide is high, it’s difficult to see what is below. When the tide goes down, as it always does, that is when the bad acts of negligent financial advisors are exposed. The Wall Street machine will undoubtedly blame this market crash on “unforeseen circumstances,” “the likes of which they have never seen.” That’s exactly what they said after the 2000 and 2008 crashes. Nobody thinks they should have foreseen this particular cause behind the crash, but planning for the unknown and unexpected is exactly what they are paid to do. If the markets always went up, why would anyone need to hire a professional financial advisor? They get paid to recommend and implement an investment strategy that is appropriate for each investor based on the investor’s age, time horizon, investment objectives, risk tolerance, and liquidity needs. Fortunately for many, the prudent advisors do just that. Unfortunately, far too many advisors, many of whom have a history of customer complaints filed against them, do not comply with their obligations.
Many investors who are retired – or are planning to retire soon – are experiencing massive declines in their investment portfolios caused by the most recent market crash; these losses may be the result of the financial advisors’ overconcentration, unsuitable investments, breach of fiduciary duty, improper recommendation of margin, or illiquid private investments. As it always has, the tide has once again receded, and the misconduct of negligent financial advisors is being exposed.
About the Author:
Attorney David Meyer is the founding principal of the Meyer Wilson law firm. He leads the firm’s nationwide investor claims practice group, which over the past 20 years, has represented over 1,000 individual investors from across the country in claims against their financial advisors for investment misconduct. Mr. Meyer served as lead counsel for hundreds of retirees in a class action against Prudential Securities and won a jury verdict of over $261 million. To learn more about David Meyer and the investment fraud practice group of the Meyer Wilson law firm, click here.