Can I Sue my Financial Advisor or Broker?

If you have suffered considerable investment losses, you may be wondering if it’s possible to sue your financial advisor or broker to recover damages. If the losses are due to broker negligence or fraud, you may be able to sue your financial advisor by filing an investment fraud lawsuit — or more commonly, a FINRA arbitration claim. 

What is FINRA? 

The financial services self-regulator, The Financial Industry Regulatory Authority (FINRA), provides regulatory services to the financial industry by licensing and regulating brokerage firms.  FINRA also operates the largest dispute resolution forum in the securities industry.  FINRA Dispute Resolution is the forum for almost all disputes between investors, brokerage firms and brokers.       

What duties am I owed by my financial advisor and brokerage firm? 

Financial advisors and brokerage firms owe a duty of care and loyalty to their customers. The advisor must use the standard of care and diligence needed to protect the customer’s interest. Failure to fulfill that duty may be considered broker negligence or malpractice by your broker. The duty of loyalty requires that the financial advisor refrain from self-dealing and place the interests of the customer first.  

Conflicts of interest may arise if your brokers’ typical method of compensation is through commissions on sales. This may tempt some brokers to excessively trade or churn the account to generate commissions. 

Duty to Follow Instructions

Your financial advisor or broker also has a duty to follow your instructions and to execute orders promptly at the best available price. Unless you have given the broker written discretionary authority over the account, the broker may trade only after receiving prior authorization from you.  

Your financial advisor or broker also has a duty to disclose all material facts relating to proposed investments and not to make any misrepresentations and to disclose the risks of any proposed investment. Your advisor has a responsibility to learn about your customer profile and the investments being recommended, and to only recommend securities which are suitable for you considering your specific investment objectives, financial circumstances, level of sophistication, and risk tolerance. Your brokerage firm also has a duty to reasonably supervise their brokers in order to enforce compliance with securities laws and to prevent violations.  

FINRA Rules and Guidelines of Ethical conduct 

FINRA rule 2010 Standards of Commercial Honor and Principles of Trade says that “a member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.” Rule 2010 is wide ranging and applies to many different aspects of the securities industry, but to sum it up, dishonest conduct is prohibited.   

Under the guidelines of ethical conduct, your financial advisor or broker is not allowed to: 

• Make recommendations for the purchase or sale of a security that is not suitable for you, given your age, financial situation, investment objectives and investment experience. 
• Engage in a private securities transaction with you or other customers (selling away). 
• Purchase, sell or remove securities in your account without notifying you first. Switch you from one variable annuity to another with no legitimate reason. 
• Intentionally misrepresent or fail to disclose material facts concerning an investment. 
• Charge a customer excessive mark-ups, markdowns or commissions. 
• Make specific price predictions or guarantee your stock will not lose money 
• Use any manipulative, deceptive or other fraudulent tactics. 

How do I check out my Financial Advisor’s Record? 

You may not be unaware that FINRA offers a free tool to help investors make informed choices about brokers and brokerage firms-and provides easy access to investment adviser information. 

FINRA’s BrokerCheck tells you instantly whether a person or firm is registered as required by law, to sell securities (stocks, bonds, mutual funds and more), offer investment advice or both. It also gives you a snapshot of a broker’s employment history, licensing information and regulatory actions, arbitrations and complaints. 

What are Common Reasons to sue my Financial Advisor or Broker? 

The White Law Group represents investors who have been harmed by broker and broker-dealer fraud and misconduct. The following are some of the common types of investment fraud we commonly see: 

• Unsuitable Investments – Brokers and financial advisors are required to due diligence on an investment before recommending it to you. The recommendations must be in line with your investor profile. 
• Excessive trading or churning – If your broker is constantly buying and selling in your account, this may be evidence of churning, which means engaging in excessive trading to generate commissions for the broker.    
• Unauthorized trading- If your broker makes a trade in your account which you aren’t aware of this constitutes unauthorized trading.   
• Selling away – If your advisor solicits you to purchase securities not held or offered by the brokerage firm they are affiliated with, this could be considered “selling away” from the firm. 
• Misrepresentations and Omissions – failure to properly disclose the risk of an investment is a misrepresentation or material omission.   

The broker must use the standard of care and diligence 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, such as the following examples.   

• Breach of Fiduciary Duty: If your broker fails to act in your best interest, this is considered a breach of fiduciary duty.  
• Failure to Conduct Due Diligence: If your broker fails to conduct due diligence on an investment product before recommending it to you, this is broker negligence.  –   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 your 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 your broker fails to diversify your account, it could cause significant investment losses.   
• Failure to Execute Trades: Also known as a failure to follow directions, if you direct your broker to sell or buy an investment product and it is not done, this can lead to investment losses, and is broker negliegence. 

FINRA Arbitration & Mediation to recover Investment Losses

FINRA operates the largest securities dispute resolution forum in the United States, and has extensive experience in providing a fair, efficient and effective venue to handle a securities-related dispute.  

Most large brokerage firms have an arbitration selection clause in their contracts that you may not be aware of, possibly buried in the fine print. You may have signed the contract without realizing it was there. This means the best and possibly the only way to bring a claim against your broker or a broker-dealer firm will be through FINRA arbitration. 

FINRA Arbitration is like going to court, but is usually faster, cheaper and less complex than litigation. It is a formal alternative to litigation in which two or more parties select a neutral arbitrator to resolve a dispute.    

Mediation can be initiated at any time before arbitration commences and even during an arbitration case before it concludes. It offers a flexible alternative to arbitration. Mediation is an informal process in which a trained, impartial mediator facilitates negotiations between disputing parties, helping them find a mutually acceptable solution. Both parties in a dispute must agree to mediation. FINRA does not require parties to mediate.    

How long do I have to file a Claim? 

It’s important to file your claim as soon as you can because if the case is not timely filed, the broker gains certain legal defenses that could bar your claim. These defenses are commonly referred to as Statute of Limitations defenses and while FINRA jurisdiction can extend for as long as six years, there are some causes of action as short as one year. Contacting a FINRA lawyer about your claim as early as possible is important. 

You may have a better chance of recovering losses if you file sooner, as information and witnesses are more available, and recollection of the events is often better.  

Do I need a FINRA Attorney to sue my financial advisor? 

It is helpful to have an experienced FINRA attorney to guide you through the process. If you have suffered significant investment losses with your broker or financial advisor, don’t wait to take action.  Please call the White Law Group at 888-637-5510 for a free consultation with a national FINRA attorney.  

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to the representation of investors in FINRA arbitration claims against brokerage firms throughout the United States.    

Our FINRA arbitration attorneys have handled over 700 FINRA arbitration claims involving unauthorized trading, unsuitable investments, fraud, negligence, churning/excessive trading, and improper use of margin.    

For information on The White Law Group and its representation of investors in claims against brokerage firms, visit https://whitesecuritieslaw.com.  

  

 

Tags: broker negligence, churning, common claims, FINRA arbitration, FINRA attorney, FINRA mediation, FINRA Rule 2010, FINRA Rules, overconcentration, securities attorneys, unsuitable investments Last modified: March 12, 2024