Brokers who don’t follow customer’s instructions may be held accountable through FINRA Arbitration.
Brokers not adhering to instructions is a breach of industry regulations. If investors suffer losses due to a broker’s failure to comply with instructions, the investor has the right to pursue compensation for damages, fees, and associated costs resulting from such losses.
FINRA has established specific regulations governing the process of brokers following instructions as directed by their clients. A broker is obligated to secure written approval before making any discretionary decisions regarding the buying or selling of securities on behalf of a client, and this written authorization must receive approval from the brokerage firm. Issues related to a broker’s exercise or non-exercise of discretion are commonly referred to as “Unauthorized Use of Discretion.”
An example of a broker failing to follow instructions is if the client specifically instructs them to execute a purchase or sale of a particular security, in a specified quantity or at a specific price. If the broker deviates from this request and opts for a “wait and see” approach, anticipating a potential improvement in price, it constitutes a violation of FINRA rules and protocols, even if verbally sanctioned by you.
Investors have the option to initiate claims for failure to follow instructions in many situations. Here are the most common violations:
- Your broker did not promptly execute a trade as directed.
- Your broker neglected to carry out a trade as per your instructions
- Your broker executed a trade with an incorrect price or an inaccurate quantity of shares
- Your broker purchased or sold an incorrect security or asset.
Failure to Follow Instructions – Breach of Fiduciary Duty
A violation of fiduciary duty occurs when an individual who is legally or ethically obligated to act in the best interest of another person neglects to fulfill that obligation, constituting a breach of the entrusted trust. It essentially represents a breach of the confidence one person has upon another.
Failure to follow a client’s direction, whether with good intentions or bad, is a breach of an investment broker’s fiduciary duty. If a broker is using any measure of unauthorized discretion, it is a violation of FINRA rules and may entitle the investor to recover any damages caused by the broker’s misconduct.
Instances of breaching fiduciary duty often involve the fiduciary acting in a manner that benefits themselves or another party at the expense of the party to whom they owe the duty. Such breaches can manifest in various ways, such as failure to disclose conflicts of interest, improper use of funds, engaging in self-dealing, or violating confidentiality obligations.
Broker Misconduct – Failure to follow Instructions
Broker misconduct involves improper or unethical conduct exhibited by a stockbroker or financial advisor when managing a client’s investment portfolios. Although not all instances of misconduct necessarily involve fraud, such behaviors can detrimentally affect investors or violate industry regulations.
Further, there are several red flags to look out for when determining if you’ve been a victim of broker wrongdoing. Failure to follow instructions is something to keep a close eye on. If your broker is consistently disregarding your instructions or preferences regarding your investments, this could be a sign of wrongdoing, and your broker may be held accountable in FINRA arbitration proceedings.
Broker Misconduct – Failure to Execute
Along with other FINRA rules holding brokers accountable, FINRA rule 5310 also plays a major role in the securities industry.
FINRA Rule 5310, also known as the “Best Execution and Interpositioning Rule,” is about making sure that when broker-dealers handle customer orders, they’re doing it fairly and efficiently. Brokers have the duty and obligation to their clients to be upfront, make smart decisions, and keep practices transparent for everyone involved.
Here are some of the major points to remember from FINRA rule 5310:
Best Execution: Broker-dealers must put in a reasonable amount of effort to ensure they execute customer orders at the most favorable prices possible. This involves taking into account various factors like the security’s price, how quickly the order can be executed, the order size, and any other relevant considerations.
Interpositioning: This rule prohibits broker-dealers from unnecessarily inserting themselves between their customers’ orders and the best available market for execution, unless they can demonstrate that they are providing value-added services that justify their involvement.
Disclosure: Broker-dealers are required to disclose their order routing practices to customers, including any potential conflicts of interest that may arise from those practices.
Record-Keeping: Broker-dealers are required to maintain records of their order routing decisions and execution quality assessments for regulatory review.
Hiring a FINRA Attorney
The foregoing information is being provided by The White Law Group. The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.
For more information on The White Law Group, visit https://whitesecuritieslaw.com.