Investment losses happen, and most of the time, it is not in our direct control. However, if you’ve experienced investment losses due to negligence, misconduct, and fraud from a financial advisor or stockbroker, you do have the power and control to recover those funds and seek the justice you deserve.
According to FINRA, the financial service has barred and banned 246 advisors and brokers. Additionally, two full investment firms were expelled in the same year. If you believe a broker was negligent, resulting in losses, you have the right to contact a stock loss lawyer to help you recover them.
Broker Red Flags
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Sadly, the financial world consists of bad actors and brokers that engage in misconduct and fraud. Even the most educated investors can fall victim. You can keep an eye out for obvious red flags, including:
- A broker that sends account statements that do not match up with your records
- A broker has over-concentrated a portfolio in one specific investment
- A broker seems to make large commissions even when you lose funds
- Finding unauthorized and unexpected trades on your statements and other records
- Additional fees on your statements that are different from what you previously discussed
- Excessive trading by your broker in your account
You can protect yourself by keeping detailed records, completely understanding your statements, and closely watching what your investment broker does.
Checking Credentials
The good news is that brokers are closely regulated, and many states have securities regulators. State and federal laws regular brokers and firms, too. Federal agencies like the SEC and FINRA get involved when a broker manages $100 million or more in assets.
The bad news is that fraudster brokers are sneaky and sometimes act outside the business norm to get around the strict regulations. One of the things you can do is check to see if your broker is even registered because some have been known to lie about it.
If you’re an investor or looking to invest, you do have resources available to check a broker or firm’s credentials.
SEC Investment Advisor Public Disclosure (IAPD). The IAPD compiles background information about brokers and firms.
FINRA Brokercheck. The database shows you complaints and disciplinary actions filed against brokers and firms.
North American Administrators Association. You will have a list of contact information for various state regulators. You will find this helpful if you’re looking to file a complaint.
Irresponsible Brokers and Unnecessary Risk
Investing is mostly a risky business. But, losses also don’t need just to be something an investor accepts, either. There are brokers out there that will take advantage and possibly expose you to unnecessary risks.
- An irresponsible broker may recommend unsuitable investments that don’t go with your risk tolerance or your goals.
- Some bad brokers will use a technique called churning. It means that they make repeated trades for the only purpose of generating commissions for them. Churning does nothing to generate income for you as the investor. You can avoid this by not allowing your broker to make discretionary trades.
- You can avoid additional risks when investing, such as over-concentrating. If a broker recommends you put a large percentage of investment funds in one investment, they expose you to unnecessary risk if the investment goes wrong.
- Selling away happens when a broker sells securities that their member brokerage firm does not offer.
- Anytime a broker puts their commissions above your best interests, it is better to cut ties and walk away. You will find a better and more transparent broker or firm out there.
The Legal Duties of a Financial Advisor
The suitability rule covers most financial advisors, while others are covered by fiduciary duty. The suitability rule states that brokers have an obligation to advise on recommendations that are reasonably suited for the investor. It is based on age, tolerance or risk, investment objectives, and any other factor that may influence suitability.
The fiduciary duty has a lower standard. It is the duty of a broker or financial advisor to act in the customer’s best interest. It is common law in most states. The most significant difference between fiduciary and suitability is that a financial institute can’t sell the customer products and services under fiduciary duty when a firm or broker has a conflict of interest. The suitability rule allows a firm to have an undisclosed conflict of interest.
Protecting Yourself from Future Broker Misconduct and Fraud
Brokers and firms have an obligation to explain investment options. Investing is a tricky business, and you have the right to ask as many questions as you want and get the answers you seek. If you don’t understand, ask the questions again until you’re satisfied with the answers.
Don’t depend on an advisor to admit when they’re wrong because most of the time, they won’t. Keeping up with statements and account information will help alert you to any red flags. Also, it is an excellent plan to keep detailed notes of your interaction with your broker.
If you suspect negligence, misconduct, and fraud, the broker’s contact information, the regulatory registration number, and your documented timeline will be the key to recovering your losses.
At The Wolper Law Firm, we represent investors nationwide. The Managing Principal of the Wolper Law Firm, Matt Wolper, is an experienced stock loss lawyer that has handled hundreds of cases throughout his career.
Investing is tricky enough without the mishandling and misconduct from a stockbroker or firm. Contact us today if you have questions about the types of investment losses you challenge or the arbitration process. We will address your questions and concerns and work with you to recover the losses and seek the justice you deserve.
