Why does it Matter if your Trades are Solicited in a FINRA Claim?
The White Law Group represents investors in claims against their brokerage firms to recover investment losses. Many of these claims involve the sale of unsuitable investments such as non-traded REITs, private placement investments, annuities, and unit nvestment trusts. If you find yourself in a dispute with your broker about a potentially unsuitable investment recommendation, it will matter whether the trade was solicited or unsolicited.
What’s the Difference between a Solicited and Unsolicited Trade?
A solicited trade is a transaction that is recommended by the broker or brokerage firm to the client, and should be made in the client’s best interest. An unsolicited trade is a transaction initiated by the client to the broker, in other words, it was your idea to invest in the product.
Suitability Claims – Why it Matters if it is a Solicited Trade
If your broker solicited an investment but didn’t explain to you the risks involved and you lost money, he could be held liable for your investment losses through FINRA arbitration.
In the event you have a dispute with your broker concerning representations that were made to you about the investment, you may not have a case if the investment was your idea. You can find out more by reading your trade confirmations to see which trades were reported as unsolicited and or solicited. Your broker is required by FINRA rules to properly mark each trade he makes as solicited or unsolicited.
FINRA Rules regarding Solicited Trades
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 securities industry, but the gist of it is that dishonest conduct is prohibited.
In this particular case, it would require a broker or financial advisor to properly mark trades as solicited, if they are.
FINRA Rule 2111 Suitability
If your broker recommends a trade without having a reasonable basis for doing so, he could be violation of FINRA Rule 2111 (Suitability).
The rule says that FINRA members (your advisor or broker dealer) must have a reason to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the customer’s investment profile.
A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with the recommendation.
Marking the Trade Solicited or Unsolicited
FINRA Rule 4511 General Requirements requires brokerage firms to maintain accurate books and records. If a broker improperly marks a trade as unsolicited and it was in fact solicited, they could find themselves in trouble with regulators. Mismarking trades is a serious offense in FINRA’s eyes and could find a broker suspended or heavily fined. Again, it boils down to suitability. It is important for firms to keep an eye on whether these transactions were appropriate for their clients.
Examples of Mismarking Trades as Unsolicited instead of Solicited
As we previously reported, JP Morgan broker was suspended in 2021 for 18 months after he allegedly executed 577 unauthorized trades in a customer’s account and mismarked 4,714 solicited trades in three customer accounts as “unsolicited.” The broker allegedly recommended an average pricing investment strategy to his customers in which he executed orders by breaking them into multiple small trades, each generating a separate commission, yet had no reasonable basis to believe this strategy was suitable for his customers.
In 2015, Stern Agee Financial Services was censured and fined $25,000 after one of Sterne Agee’s registered representatives mismarked approximately 966 order tickets as “unsolicited,” when that was not the case. The Firm failed to detect the mismarked tickets and failed to enforce its written supervisory procedures prohibiting solicitation of inverse or leveraged exchange traded funds.
FINRA Arbitration 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.
Investors can file an arbitration claim or request mediation through FINRA when they have a dispute involving the business activities of a brokerage firm or one of its brokers. To be considered, the alleged act resulting in a claim must have taken place within the past six years.
If you are concerned about unsuitable investment recommendations by your 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.
The White Law Group’s 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: FINRA, FINRA arbitration, FINRA attorney, FINRA Rule 2010, FINRA Rule 2020, FINRA Rule 2111, finra rule 2210, finra rule 4511, JP Morgan, securities attorneys, solicited trade, solicited trades, Stern Agee, suitability, Unsolicited trades Last modified: February 16, 2023