Brokerage firms and the financial advisors they supervise are subject to securities industry standards of care established by FINRA rules and regulations promulgated through brokerage firm compliance manuals. Negligence can be the basis of a securities arbitration claim in instances where brokerage firms and financial advisors fail to adhere to industry standards in the handling of an investor’s brokerage account, and did not act as a reasonable and prudent financial advisor would have acted, and as a result of the negligent act or omission, the investor sustains investment losses.
Brokerage firms make representations to the investing public concerning their financial expertise and the ability to manage client accounts for many specialized situations through media relations, advertising and publications. Investors are considered reasonable in the trust they place in brokerage firms and the financial advisors they employ. These financial institutions owe their clients a responsibility to adhere to financial services industry standard of care in maintaining and monitoring their accounts. If this standard of care is violated, investors may suffer significant losses due to a brokerage firm and/or a broker’s negligence.
The negligence of brokerage firms and financial advisor can be the result of a lack of supervision and training in situations where they are unaware of important information that they reasonably should have known. A brokerage firm can be the subject of a negligence claim for the failure to supervise and adequately monitor the activities in a brokerage account. Negligence claims are usually made in addition to other causes of action in a securities arbitration claim for damages.
The following are examples of potential negligence claims for damage:
- Failure to make recommendations consistent with client investment objectives and risk tolerance;
- Failure to implement risk management strategies for concentrated stock positions;
- Failure to conduct reasonable due diligence;
- Failure to avoid taxable events in the rollover of tax qualified accounts;
- Failure to monitor investor accounts in light of changes in customer circumstances and market conditions.
The negligence does not have to be intentional to result in a viable securities arbitration claim for damages. A negligent act may not be a willful or intentional act, but simply an omission or failure to act. A brokerage firm and its representative cannot argue that it was unaware of the securities industry standards required, but it should have known based on widely held standards of care or based on the required knowledge of economic and financial matters at issue
To be held liable for negligence, it is not necessary for the broker to have intended the consequences of the negligent act. If a reasonable, prudent person would have foreseen the potential for the consequences arising out of such an act and taken reasonable steps to prevent such consequences from occurring, the act can be deemed a negligent one.
The Silver Law Group can help you determine whether an investment loss is the result of a brokerage firm and their financial advisor’s negligent advice concerning an investment account. If an investor suffers losses as a result of negligence they may be able recover their losses in a FINRA arbitration claim.
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