Stockbroker Negligence, Breach of Fiduciary Duty, and Fraud

The majority of our clients retain us to recover investment losses from stockbrokers, investment advisers, financial advisers and brokerage firms large and small. Most of these cases are filed in arbitration through FINRA Dispute Resolution, a forum in which we have considerable expertise. We work with FINRA arbitration claims every day. In fact, Bob Banks has been on the FINRA advisory committee that drafts the rules that govern FINRA arbitrations for more than six years. He chairs its Rules and Procedures Subcommittee. He helped write the arbitrator training materials for FINRA arbitrators, and has been a FINRA arbitrator himself since 1990. Stockbroker negligence, breach of fiduciary duty and fraud claims typically involve the following:

Financial advisors can only recommend investments that are “suitable” to the investor. They must ask about the investor’s financial background, experience, risk tolerance, and understand the investment they are recommending. Unsuitability exists when a broker recommends an investment that is not appropriate for the investor’s goals or risk tolerance.

Portfolios should have a mix of equities (stocks), fixed income (bonds, cash, treasury bills), and cash. Generally, the older you get, the greater the amount of cash and fixed income investments you should have. A financial advisor’s failure to properly allocate a portfolio can be negligence.

Stockbroker firms are all required to closely supervise their financial advisors. If they fail to do so, and the broker makes a mistake or violates a law or policy, the brokerage firm can be negligent.

Asset classes in a portfolio should be diversified among sectors such as utilities, technology, and consumer good. Failure to diversify a portfolio can be negligent.

Financial advisors are required to fully understand the investment products they sell. If they do not appreciate the risks or limitations of an investment, there may be a right to recover.

When a financial advisor or stockbroker fails to buy or sell an investment you have ordered, it is negligence.

It is against the law for stockbrokers to make false statements to investors when advising them on whether to buy, sell or hold an investment.

Stockbrokers are not allowed to leave out important information when recommending investments. Information which is “material” to making an informed decision must be disclosed before a stockbroker recommends a purchase or sale of an investment. Material omissions could include knowledge of unscrupulous managers, information about level of risk, liquidity or time horizons, or other facts which a reasonable investor would want to know. If it is later discovered that the stockbroker knew important facts that were never disclosed to the customer, a claim for fraud may be appropriate.

Stockbrokers are not allowed to use their customers’ accounts for their own personal use. Stockbrokers who co-mingled their customers’ assets with their own and then lie about it to continue their behavior are committing fraud. Additionally, because firms are required to closely supervise their brokers, the broker’s firm is likely also responsible for the fraud that its broker committed.

If you have lost considerable assets as a result of your financial advisor’s negligence or misconduct, we may be able to help. Call us and speak with a lawyer who knows how to evaluate and win cases for investors. Or, fill out our free confidential evaluation form.