Do Professional Financial Planners Understand Who Gets Sued And Why?

Of the 35 million lawsuits annually in the U.S., half are deemed frivolous


By Ray Chodos

Ray Chodos is a member of the Wealth Preservation Group LLC, a Greenwich, Connecticut based planning organization specializing in Wealth Preservation, Business Succession, and Tax Minimization. He can be reached at 

In a recent study of affluent ($5 million+ investable) more than half of the respondents were concerned about being sued for acts that they neither participated in or may even have been aware of. Such concern is not without merit as nearly 35 million lawsuits are filed each year in the United States. It is estimated that nearly half are regarded as “frivolous”.

This number has risen dramatically over the last 40 years for a variety of possible reasons:

  1.  Creative lawyers have expanded the theory of liability to include what “you could or should have done to foresee the damage that occurred to my client”. When you consider professional liability, oral contracts, loans, leases, purchases, sales of goods and services. Someone to blame and pay theory, negligence, imputed negligence, employees, discrimination, wrongful discharge, harassment etc.  Competition predation, Co-tenants- dissolved business relationships, marriages and romantic involvements; it is difficult to imagine not ever being sued if one is active and affluent.
  2.  Legal representation Rates may vary anywhere from $50 an hour to a $1,000 an hour or more. This provides a business incentive to litigators to seek out creative ways to promote litigation. TV and other media litigator’s ads are a testament to this incentive. Contingency compensated litigators may get 1/3 of the eventual settlement or award in a case without asking for a fee up front. Sue now, pay later is not uncommon. This approach to “joint venture” litigation is sometimes helpful to a plaintiff with little funds and thereby access to competent counsel. Often this joint venture approach facilitates litigation that may otherwise not have been undertaken by those with adequate funds to traditionally engage counsel. Few contingency litigators would agree to take a case on such an arrangement if they were not comfortable that there is a “deep pocket” that can somehow be tied to the perceived damages being sought. This is where perceived affluence is a potential target for litigation connection even if only remotely connected.
  3.  Juries are generally made up of other than affluent persons (99% of the US population). It is            sometimes difficult for them to relate to or even understand the affluent person’s perspective.   Sometimes juries seek to right perceived societal wrongs with their verdict vote.
  4. Judges have an average of 400 distinct cases to wade through annually (about 200 days) and often promote settlements to avoid trials and further backups. Such pushed settlements may be agreed to by the defendant despite not being liable as a way of stemming the legal fees, public exposure and risk an errant jury decision despite the defense offered. These settlements of course encourage more litigation even on the thinnest of legal theories.

Risk Management an integral component of wealth management.

Risk management is a process for identifying, assessing, and prioritizing risks of different kinds. Once the risks are identified, the risk manager will create a plan to minimize or eliminate the impact of negative events. A variety of strategies is available, depending on the type of risk and the type of business. Few financial planning firms have in depth risk management specialists available despite the apparent importance to the client of retaining their major assets. Advisor awareness of risk management is vital to the advisory firm as well as the clients served.
The very portfolio of investments managed by the advisory firm may be held in the client’s name and thereby completely vulnerable to involuntary redistribution by a successful claimant. Clients presumption of “wealth management” services provided by advisors may include counsel as to asset insulation risks and available options. Perhaps there may even be liability exposure to the firm that has not addressed risk management at least for the client’s assets that they manage.
Please feel free to contact a representative of the Wealth Preservation Group LLC. for further information, or your asset protection attorney.