Securities Attorneys for Broker Negligence

Brokers and brokerage firms owe a duty of care and loyalty to their customers. The broker must use the standard of care and diligence needed to protect the customer’s interest. Failure to fulfill that duty may constitute broker negligence or malpractice. Broker negligence may not always involve intentionally fraudulent behavior. 

The duty of loyalty requires that the broker refrain from self-dealing and place the interests of the customer first. A source for tension and potential for conflict of interest may arise given the brokers’ typical method of compensation through commissions on sales. This may tempt some brokers to overtrade or churn the account to generate commissions. 

Types of Broker Negligence 

• Breach of Fiduciary Duty: If a broker fails to act in the best interest of the client, this is considered a breach of fiduciary duty. Brokers are obligated to make decisions that will benefit the customer, and if they don’t, it is considered broker negligence. 
• Misrepresentations and/or Omissions: If a broker leaves out key information about an investment or misrepresents the risks or material facts leading a customer to invest in a product or strategy they normally wouldn’t touch, this can be considered misrepresentation. Unfortunately, many investors do not discover the truth in such cases until after they have incurred substantial losses and then realize that the investment was not so safe in the first place.   
• Failure to Conduct Due Diligence: If a broker fails to conduct due diligence on an investment product before recommending it to his clients, this is broker negligence. For example, The White Law Group currently represents many investors who have suffered damages as a result of the recommendation of their financial advisor to purchase private placement investments. We have found that in many cases the FINRA registered firms failed in their fiduciary duty to perform adequate due diligence and to disclose the risks involved with these investments. Brokerage firms that fail in this fiduciary duty may be liable in FINRA dispute resolution claims to recover investment losses. 
• Unsuitability: Unsuitability continues to be a leading cause of broker negligence suits. FINRA Rule 2111 requires, in part, that a broker-dealer or associated person “have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the [firm] or associated person to ascertain the customer’s investment profile.” 
• Failure to Supervise: Brokerage firms are required to supervise their advisors to ensure that they are complying with FINRA rules. If it can be determined that the financial advisor violated FINRA rules and the employers failed to adequately supervise him, these firms can be held responsible for any resulting losses in a FINRA arbitration claim.   
• Overconcentration: If a broker fails to diversify the client’s account, this could also be considered broker negligence, as it could cause significant investment losses.  
• Failure to Execute Trades: Also known as a failure to follow directions, if an investor directs his broker to sell or buy an investment product and it is not done, this can be considered broker negligence. 

FINRA Arbitration to Recover Investment Losses

The Financial Industry Regulatory Authority (FINRA) operates the largest dispute resolution forum in the securities industry.   FINRA Dispute Resolution is the forum for virtually all disputes between and among investors, brokerage firms and individual brokers.    

FINRA Arbitration is very different than court litigation, with its own specific rules of procedure and operation.  To see learn more, see the FINRA Code of Arbitration Procedure.

The White Law Group

The White Law Group’s securities attorneys have handled over 700 FINRA arbitration claims involving unauthorized trading, unsuitable investments, fraud, negligence, churning/excessive trading, and improper use of margin.    

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. 

Free consultation with a Securities Attorney

For a free consultation with a securities attorney, please call the firm’s office at 312-238-9650.  For information on The White Law Group and its representation of investors in broker negligence claims, visit https://whitesecuritieslaw.com. 

 

Tags: broker negligence attorneys, failure to execute, failure to supervise, FINRA arbitration, finra attorneys, misrepresentation, overconcentration, unsuitability Last modified: March 11, 2024