Stockbrokers can be your best allies or worst enemies when it comes to your investments. Their advice can mean the difference between financial security and a financial nightmare. When stockbrokers adhere to sound investment principles and industry-best practices your financial goals may become a reality.
Unfortunately that is not always the case. Sometimes a stockbroker’s conduct fails to meet the standard required for a professional in that capacity. Sometimes this can lead to significant losses.FINRA Rules Dealing With Stockbroker Misconduct
To protect investors, the Financial Industry Regulatory Authority (“FINRA”), as the regulator of securities broker-dealers, writes and enforces rules governing the activities of brokers. A broker’s and/or brokerage firm’s failure to comply with FINRA rules and regulations can result in a claim for damages to recover investment losses.
Stockbroker Misconduct includes:
The suitability of a particular investment and/or investment strategy is governed by FINRA Rule 2111 “Suitability” and FINRA Rule 2090 “Know Your Customer.” Suitability requires that a broker have “a reasonable basis to believe a recommended transaction or investment strategy involving a security or securities is suitable” based upon the investment profile of the customer specifically: the customer's age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance. The suitability of an investment and/or investment strategy is to be determined based on an investor’s ability to understand and assume the risks associated with an investment and/or investment strategy.
A full-service brokerage firm is required to provide investors much more than trade execution. When an investor relies upon the direction and advice of a brokerage firm and its registered representatives (stockbrokers), a fiduciary relationship is established. A fiduciary relationship requires the brokerage firm and its brokers place investors’ best interest before their own. The subordination of their interests requires the utmost diligence and care when making investment recommendations.
Negligence is the failure of a brokerage firm and its representatives to act in a reasonable and prudent manner when providing financial advice. The negligence comes from the failure to adhere to the standards of care established by the securities industry promulgated through FINRA rules and regulations. 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 broker is required to provide an investor with information to make decisions about their investments. When the information provided by the broker is incorrect or incomplete investors are at risk and brokers can be held responsible for investment losses.
It is paramount for all investors to be proactive with their accounts and investments. Make sure to review and examine your broker’s investment proposals and always ask questions for clarity of information that you may not understand. These simple steps can help you avoid many types of broker fraud and misconduct.
If you feel uneasy about an investment opportunity or have become a victim of stockbroker misconduct, contact the securities lawyers at Silver Law Group, a national Securities Arbitration & Investment Fraud Law firm. Their lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to security and investment fraud or stockbroker misconduct. The securities lawyers at Silver Law Group work hard to protect your money from bad brokers.
To learn more about FINRA’s investor protection activities concerning stockbroker misconduct: