On the other hand, new case filings involving REITs increased from 187 in 2019 to 316 in 2020; new case filings involving limited partnerships increased from 96 in 2019 to 132 in 2020 and new case filings involving business development companies increased from 19 in 2019 to 132 in 2020.
Despite the current good news about financial markets, financial advisors should be aware that they are operating in uncharted territory, that the risk/return landscape has changed dramatically and that it is far from clear that markets will remain at their current highs. Financial advisors also need to be aware that certain clients may have encountered unforeseen financial difficulties as a result of the pandemic, and that the risk of customer complaints can increase when customers encounter financial problems due to extrinsic factors.
In light of all of this uncertainty, financial advisors should meet with their clients, talk about what is going on in the markets and have documented discussions with clients about how much risk they want to take. Documenting these types of discussions and updating official client profile information to include the most current information about a client’s risk tolerance, investment objectives and current financial situation will not only help to ensure that client accounts are being invested appropriately, but will also limit the artistic license that PIABA attorneys can take down the road if one of these customers were to lose money and blame his or her financial advisor for unwanted exposure to risk.
To a certain extent, it seems hard to stay out of the stock market these days. And in this type of environment it is not clear where investors can find safety as well as a competitive return. For example, even traditionally safe fixed-income investments may be more of a risky proposition these days insofar as any increase in interest rates will undo current high prices of long-term bonds. However, financial advisors with clients who are unwilling to stay in the market indefinitely and who can ill afford to take a hit on their equity portfolios should, at a minimum, watch for a change in market psychology from “risk on” to “risk off” and be ready to reallocate client portfolios to short-term government money market funds.
Daniel A. Hetzel is a partner in the Chicago office of Kaufman Dolowich & Voluck LLP where he concentrates his practice in the area of financial services litigation and arbitration, as well as professional liability and civil litigation.