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Failure to Supervise

In today’s complex investment marketplace, much of the investing public places its trust in brokerage firms and their registered representatives known as financial advisors or stockbrokers. What is less commonly known is that brokerage firms are directly responsible for the actions of their registered representatives in the handling of investors’ accounts.

The Financial Regulatory Industry Authority (FINRA) governs the practices of brokerage firms and registered representatives and establishes in its Rule 3010 exactly how firms are required to supervise their representatives. It also establishes the requirements for compliance with the securities industry standards of care when it comes to handling customer accounts.

Brokerage firm compliance manuals provide written procedures informing registered representatives on firm policies, procedures and prohibited conduct in compliance with industry standards.

Supervisory systems by firms are ideally based on the specific activities related to the type of business conducted by the registered representatives at the branch office. Branch office managers are expected to protect investors from violations of FINRA rules and regulations. Both the brokerage firm and branch office manager are required to supervise:

  1. Hiring and selection of financial advisors;
  2. Training financial advisors;
  3. Financial advisor communications with customers;
  4. Presentation materials used by financial advisors;
  5. Recommendations made to clients by financial advisors; and
  6. Client transactions made by financial advisors.

Branch office managers may delegate tasks, but not the responsibilities given to them by the brokerage firm. Front-line managers supervise the day-to-day activities of the representatives assigned to them, however, the volume of transactions made every day is allowed to be monitored by an electronic management system. This system keeps track of daily client account activity and flags suspicious activities such as:

  1. If there is a certain percentage decline in brokerage account equity;
  2. The levels of margin related to brokerage accounts;
  3. Excessive trading or churning
  4. Broker account revenues (taking account equity into consideration); and
  5. Securities concentration

While it is crucial for investors to have a trusted relationship with their financial advisors, there are times when the branch manager, in his or her supervisory role, may need to speak directly with the investor to ensure the client understands the investment strategy and the risks associated with it. Financial advisors may not want to appear as if they are being scrutinized by management, however, it is imperative that investors know that they can seek deeper answers from the firm when they are not fully addressed by the financial advisor.

If you or a loved one suspects that an investment loss is the result of a firm’s failure to supervise the activities in a brokerage account, turn to the Silver Law Group for advice. You may be able to recover losses through a FINRA arbitration claim.

FINRA Arbitration

An experienced securities law attorney at the Silver Law Group can provided you with more information about the arbitration process through FINRA. Our experienced and knowledgeable attorneys represent investors harmed by stockbroker and brokerage firm misconduct. Contact our team at 1-800-975-4345 or fill out our contact form today and tell us your story.

Client Reviews
“My in-laws lost their retirement funds to a dishonest broker. Silver Law Group and Scott Silver aggressively pursued their losses until he got their money back.” Ben M.
“I foolishly gave my money to a con artist promising me a great return on my money. Scott Silver zealously handled the matter, recovering my losses.” Darren S.
“I almost lost a lifetime of earnings after trusting the wrong person. Silver Law Group guided me through the arbitration process and a mediation, always fully prepared and committed to my case.” Scott T.