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Understanding the Difference Between Solicited and Unsolicited Trades (and Why It Matters When You Suffer Investment Losses)
As an investor, it is important to understand the difference between solicited and unsolicited trades. This difference has key implications for your legal rights—and your ability to recover your losses from an unprofitable investment.
As we mentioned, trades are considered to be “solicited” when they are recommended by your stockbroker. In this scenario, your broker is soliciting your business—trying to generate a sale in order to earn a commission. In contrast, a trade is considered to be “unsolicited” if you bring the trade to your broker.
When brokers recommend trades, they have a duty to make informed recommendations that take into account individual investors’ financial circumstances and risk profiles. When they execute unsolicited trades, they do not. As a result, when recommending trades, brokers are exposed to potential liability for making unsuitable investment recommendations, while this is not the case when they simply execute trades that their customers bring to the table. This means that if a broker makes an unsuitable recommendation that leads to investment losses, the broker can be held liable in FINRA arbitration.
Why It Matters if a Trade is Solicited or Unsolicited
Now, why does it matter if a trade is solicited or unsolicited? When a broker recommends an investment and conducts a solicited trade, there is a higher risk of fraud. In this scenario, there are two main concerns from the investor’s perspective. The first is that the broker is recommending the trade based on a conflict of interest—maybe the broker will earn a substantial commission or stands to benefit as a stockholder. The second is unsuitability. While brokers have an obligation to make suitable investment recommendations that reflect individual investors’ portfolios and risk profiles, many fail to do so.
With unsolicited trades, investors have limited options for pursuing a fraud claim against their broker. Since the broker didn’t recommend the trade, the broker generally can’t be blamed for having a conflict of interest or making an unsuitable investment recommendation. However, investors may still have certain claims available. For example, if a broker misrepresents the fees associated with an unsolicited trade, waits too long to execute the trade or intentionally front-runs the trade, these could all potentially justify claims for fraud.
How Can You Determine if a Trade Was Solicited or Unsolicited?
When brokers record trades in an investor’s brokerage account, they are supposed to label the trades as either solicited or unsolicited. This is referred to as “marking” the trade. Under FINRA Rule 2010, brokers have a duty to accurately mark all trades. So, if you have suffered fraudulent losses due to an unsuitable solicited trade, the trade should be marked as solicited on your account statement.
Unfortunately, this doesn’t always happen either. In some cases, brokers will incorrectly mark solicited trades as unsolicited. They do this in an effort to avoid liability for making an unsuitable investment recommendation. But, while this may cause some confusion initially, an experienced lawyer will be able to examine the trade, your communications with your broker and other relevant evidence to determine the trade’s true nature.
Don’t Rely on Your Broker’s Characterization of Your Trades
In many cases, investors who have suffered losses will review their trading history and see trades marked as “unsolicited” that they don’t remember asking their brokers to execute. Oftentimes, brokers will falsely mark solicited trades as unsolicited in an effort to avoid liability. The Financial Industry Regulatory Authority (FINRA) has acknowledged that this is an issue, and it has adopted FINRA Rule 2010 specifically to require the accurate marking of transactions.
Whether you have suffered losses due to a solicited trade or you believe that your broker has incorrectly marked a solicited trade as unsolicited (or both), you should consult with a lawyer promptly. You may have a claim for stockbroker fraud, and if you do, your lawyer can help you seek to recover your fraudulent investment losses through FINRA arbitration.
Discuss Your Legal Options with an Investment Lawyer at Zamansky LLC
If you believe that you have suffered fraudulent investment losses due to an unsuitable solicited trade, you should speak with a lawyer about your legal rights as soon as possible. To arrange a free, no-obligation consultation with a lawyer at Zamansky LLC, please call 212-742-1414 or tell us how we can help online today.