Wood Smith Henning & Berman has achieved a full defense victory in a complex FINRA arbitration, securing a complete dismissal of claims against its client, a seasoned investment advisor. The case, which was by led by partner Michelle Arbitrio and senior associate Seth Bursky, involved claims that the advisor breached his fiduciary duty by making unsuitable investment recommendations. However, the FINRA arbitration panel found the advisor's investment strategy to be both suitable and prudent, given the claimant's stated investment objectives and market conditions.
The claimant, a sophisticated investor, alleged that his advisor failed to make appropriate adjustments to his IRA in anticipation of the 2022 market's volatility. Specifically, he claimed the advisor's investment allocations failed to protect him against losses. The arbitration panel found the portfolio, which consisted primarily of low-risk investments in multi-asset inflation-managed funds, long-short commodities, low-core macro funds, and a government money market fund, was consistent with claimant's objectives and the market outlook for 2022. The allocations were carefully selected to mitigate inflation and rising interest rates and designed to limit correlation with the high-volatility stocks and bonds. In fact, by the end of 2022, 84% of the portfolio held a Morningstar risk rating of "low" and 99% of the assets had a rating no greater than "below average."
"This case underscores the importance of adhering to well-informed, strategic investment decisions during periods of market volatility," said Arbitrio. "Our client made suitable recommendations based on the claimant's conservative risk tolerance and market outlook. The decision reaffirms that market fluctuations are not grounds for fiduciary liability."
Despite claimant's contention that his advisor failed to adjust his portfolio, evidence showed that the portfolio was reallocated in early 2023 to adapt to market recovery. When the claimant expressed dissatisfaction in early 2023- seven months after the initial investment- he was advised to maintain his conservative approach. Instead, the claimant independently withdrew $1 million from his original $1.2 million portfolio to pursue other investment products. The claimant proceeded with some of these investments against his advisor's guidance, moving a significant amount of his funds outside the managed portfolio.
"This decision clarifies that investment advisors cannot be held responsible for client decisions to abandon agreed-upon strategies or pursue alternate investments that do not align with their original objectives," said Bursky. "Our team demonstrated that our client acted in accordance with the plaintiff's risk tolerance and objectives and was diligent in his recommendations."
The claimant also attempted to reference the DOW and NASDAQ indexes as benchmarks for his portfolio's performance, asserting that these indices' strong 2023 performance proved improper management. The factfinder rejected this comparison, acknowledging that the portfolio was structured primarily to avoid exposure to stock market volatility, not to mirror it. To align with the DOW or NASDAQ's high-risk profile, the claimant's portfolio would have required a substantially higher risk tolerance, one that he did not have.
WSHB's victory in this case reflects its deep expertise in financial services and fiduciary duty litigation. By thoroughly analyzing the claimant's investment profile, market conditions, and industry benchmarks, the firm successfully crafted a compelling defense that dismantled the claimant's claims. This result highlights WSHB's ability to deliver results for clients facing high-stakes arbitration and complex investment disputes.
Wood Smith Henning & Berman: Your Trusted Partner
Experience the power of a proven industry leader in the law. Wood Smith Henning & Berman (WSHB) is renowned globally for our exceptional trial results and expertise in handling complex litigation. With our nationwide network of over 500 lawyers across 42 office locations, we are dedicated to providing comprehensive litigation and counsel to both public and private companies. From start-ups to Fortune 100 corporations, we deliver unrivaled legal representation that consistently achieves favorable outcomes for our clients.
At WSHB, our strength lies in our diverse and accomplished team of attorneys. We boast thought leaders and defense specialists in over 41 fields of practice, covering an extensive range of specialties. Founded in 1997, we are proud to be among the top ten law firms in the nation for diversity, female partners, female lawyers, and Hispanic lawyers. This rich tapestry of diversity forms the foundation of our success when presenting cases to juries of our peers, ensuring we understand the unique nuances underlying each claim.
Our expansive geographic footprint allows us to provide effective and efficient representation to clients nationwide, regardless of their location, background, or legal expertise. By prioritizing strategic and cost-effective approaches to litigation, our dedicated attorneys work tirelessly to protect the interests of our clients. We have a track record of success, securing numerous victories such as summary judgments and defense verdicts on behalf of our clients. As a trial firm, we have taken over 2,000 cases to verdict, making us well-equipped to handle even the most complex and high-stakes litigation matters across the country.