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Find Out if You Are Entitled to Recover Your Investment Losses from an Experienced Broker Misconduct Attorney
When you start working with a broker, you expect your broker to help you invest with your best interests in mind. You expect your broker to give you customized recommendations based on your investor profile, and you expect your broker to give you all of the information you need to make informed investment decisions
Unfortunately, this doesn’t always happen. While many brokers are ethical professionals who are committed to helping grow their clients’ portfolios, some brokers put their own interests first. Some brokers also simply make mistakes—whether due to a lack of knowledge, inexperience, or lack of care.
If you believe that your broker has violated his or her duty of care or duty of loyalty, you should speak with a broker misconduct attorney. Brokers are held to several high standards, and when they fail to meet these standards, they can be held liable in FINRA arbitration. Brokerage firms can be held liable for their brokers’ misconduct as well, and, in many cases, recovering unwarranted investment losses involves filing a claim with a negligent or unscrupulous broker’s firm.
10 Common Examples of Broker Misconduct
Broker misconduct can take many different forms. When you speak with a broker misconduct attorney at Zamansky LLC, your attorney will carefully review your account records and your broker’s communications to determine what type of claim (or types of claims) you can pursue. If you are entitled to recover your investment losses, your attorney will file for arbitration on your behalf, and your attorney will represent you through the entire arbitration process.
Do you have a claim for broker misconduct? Some of the most common forms of broker misconduct include:
Broker Negligence
Brokers are required to act with the competence and skill required to help their clients make informed investment decisions. If your broker improperly analyzed the risk involved with an investment, overlooked material information about an investment, or made any other mistake that led to your investment losses, you may have a claim for broker negligence.
Excessive Use of Margin
Trading on margin can be extremely high-risk, and for this reason, it is generally only suited to experienced and well-heeled investors. If your broker recommended using margin excessively, or if your broker made excessive use of margin without your understanding, knowledge or consent, this could also justify a claim in FINRA arbitration.
Excessive Trading (“Churning”)
Conducting excessive trades in order to generate fees or commissions is a practice known as “churning.” It allows brokers to profit at their clients’ expense, and it is expressly prohibited under federal securities regulations and FINRA’s rules. If your broker seems to be trading excessively on your account, you should speak with a broker misconduct attorney about your legal rights.
Failure to Follow Instructions
The broker-client relationship is a two-way street. The broker provides investment recommendations, and the client instructs the broker on which trades to make. In addition to providing suitable recommendations, brokers must also follow their clients’ trading instructions. If your broker failed to follow your instructions (i.e., by failing to execute a trade, waiting too long to execute a trade, or buying or selling the wrong stock), this can justify a FINRA arbitration claim as well.
Failure to Supervise
Brokerage firms have a responsibility to supervise their brokers, and senior brokers must ensure that junior brokers are meeting their duties to the firm’s clients. But, while adequate supervision is required, this doesn’t mean that adequate supervision always happens. Failure to supervise is a common issue, and it is an issue for which investors can—and should—pursue appropriate remedies with the help of an experienced broker misconduct attorney.
Lack of Diversification
Diversification is one of the fundamental principles of responsible investing. Diversifying an investor’s portfolio helps ensure that unexpected events at a single company or within a single market sector will not lead to devastating losses. Brokers have a duty to avoid making investment recommendations that lead to a lack of diversification (or “overconcentration”) for their clients. While clients have the final say in the securities they choose to purchase, those who rely on bad advice to make their decisions can use FINRA arbitration to hold their brokers accountable.
Misrepresenting or Omitting Material Information
When making investment recommendations to their clients, brokers must provide all of the information their clients need to make informed investment decisions. Information that a reasonably prudent investor would consider important to their decision-making is referred to as “material” information. If your broker misrepresented any material information about an investment or if your broker omitted material information when making an investment recommendation, your reliance on the recommendation may justify a claim for broker misconduct.
Recommending Unsuitable Investments
Along with providing investors with all material information about their recommended investments, brokers must also ensure that they are providing “suitable” investment recommendations. To qualify as “suitable,” a recommendation must be appropriate for a particular investor based on the investor’s portfolio and risk profile. When brokers don’t do their research (or when they have their own best interests in mind), they may make unsuitable investment recommendations that lead to significant losses.
Selling Away
Selling away refers to the practice of recommending securities or other investments that a broker’s firm does not offer. It is prohibited under FINRA’s Rules, and brokerage firms typically prohibit their brokers from selling away as well. Yet, the promise of high commissions from high-risk investments will often be too tempting for brokers to ignore, and some brokers will sell away to reap these commissions regardless of the potential implications for their clients.
Unauthorized Trading
Unauthorized trading is another all-too-common practice that brokers use to profit at their clients’ expense. If you have noticed unauthorized trades on your brokerage account, this most likely means that your broker is using your portfolio to rack up commissions—and hoping that you won’t notice. This practice is strictly prohibited, and it is yet another reason why many investors find themselves in need of an experienced broker misconduct attorney.
Understanding Your Broker’s Legal Duties
As an investor, it is important to have a clear understanding of your broker’s legal duties. In the event that your broker violates his or her duties, being able to identify the violation is one of the first steps toward recovering your fraudulent investment losses. Under the federal securities regulations and FINRA’s Rules, some of the key legal duties that brokers owe to their clients include:
- A duty to disclose any conflicts of interest the broker may have that prevent the broker from acting fully in a client’s best interests (i.e., an opportunity to earn a substantial commission from a high-risk and unsuitable investment);
- A duty to conduct adequate research to become sufficiently informed about a security’s nature, structure, price and risks before recommending the security to a client;
- A duty to sufficiently inform all clients of the risks involved with the securities that the broker recommends;
- A duty to disclose all other material facts about the securities that the broker recommends, including fees and commissions;
- A duty to only provide investment recommendations that are suitable to each client’s personal portfolio and risk profile;
- A duty to timely execute all trades in accordance with clients’ instructions and to avoid engaging in any transactions without clients’ express authorization; and,
- A duty to comply with all applicable rules and regulations, including the rules and regulations that require adequate supervision.
If your broker has violated any of these duties—or if you believe your broker may have violated any of these duties—resulting in investment losses, you should speak with a broker misconduct attorney promptly. Investors who lose money due to violations of their brokers’ duties have clear legal rights, and you can hire an attorney to assert your legal rights in FINRA arbitration at no out-of-pocket cost.
How to Find Out if You Have a Broker Misconduct Claim
Let’s say you have concerns about broker misconduct. How do you find out if you have a claim to pursue? In this scenario, you should gather all account records and relevant communications that you have in your possession. This includes records and communications stored in your online brokerage account, as well as emails, text messages and anything you received in the mail. You should also take detailed notes outlining why you believe you may be a victim of broker misconduct.
Then, you should schedule a free consultation with a broker misconduct attorney. While investors have clear protections, determining when these protections apply isn’t easy. Understanding if your broker is liable for misconduct—and, if so, what you need to do to hold your broker (or brokerage firm) accountable—requires experienced legal representation.
Schedule a Free Consultation with a Broker Misconduct Attorney
Do you have questions about filing a claim for broker misconduct? If so, we encourage you to contact us promptly for more information. To speak with an experienced broker misconduct attorney at Zamansky LLC in confidence, call 212-742-1414 or request a free consultation online today.