Negligence, the legal concept that serves as the basis for most personal injury lawsuits, is also useful in assessing the actions of stock brokers. Financial advisors owe a duty of care to clients, and brokerage firms are generally responsible for the negligent conduct of their advisors. When advisors fail to abide by this duty of care and it results in financial losses to the investor, the broker or his or her company may be liable for negligence.
Financial advisors owe a duty of suitability and the reasonable care of a client. Stock brokers must avoid unreasonable behavior that puts their clients at risk of financial harm. Breaching their duties can cause a client to lose hundreds of thousands of dollars or even millions of dollars, among other damages.
The securities laws of the United States exist to protect investors from losses and minimal gains resulting from poor or unethical brokerage practices. Investors need to understand the securities laws so they can tell when they have valid legal claims against fraudulent or negligent brokers and brokerage firms. The investment fraud lawyers at Erez Law are here to provide investors with valuable legal resources should they encounter broker negligence or other breaches of fiduciary duty. Our 99% success rate and over $175 Million in recovered damages for our clients speak to our commitment to protecting American investors.
Brokering in Bad Faith
Investment advisory firms, brokerage firms, and individual stockbrokers all provide investors with market insights and advice to maximize the returns on their clients’ investments. The stock market is unpredictable, and many investment advisors will attempt to chalk up investors’ losses to market downturns and other unforeseen circumstances. However, if investment advisors fail to properly disclose important information, accurately advise their clients, or fail in their analyses, these actions can constitute a breach of U.S. securities laws.
Investors who have lost money due to the actions of their advisors need to connect with reliable securities attorneys to recover their damages. Filing a claim of negligence against a stockbroker, investment advisory firm, or brokerage firm does not require proof of harmful intent – all plaintiffs must do to recover their losses is prove the investment advisor, broker, or firm was negligent in their handling of the plaintiff’s investment.
Examples of Broker Negligence
Whenever an investor hires a firm or broker to manage his or her investments, the investor will provide the broker or firm with clearly stated goals for their investments. If brokers fail to recommend investments that align with these goals, fail to disclose important information that pertains to these goals, fail to diversify their clients’ portfolios, or fail to warn their clients of applicable penalties for investments, all constitute broker negligence.
A broker may unintentionally cause harm by failing to monitor a portfolio or recommending unsuitable investments. These actions constitute negligence and a failure to provide for the reasonable care of clients. Generally, a professional who fails to take reasonable care has breached his/her duty. Negligence can take many forms, harming a client through money lost in bad investments and missed profits from market gains.
There are many types of broker negligence:
- Breach of fiduciary duty – Fiduciary duty refers to an obligation to act in a client’s best interest when handling the client’s money. If brokers violate their fiduciary duty to their clients and clients sustain losses, investors can file negligence claims against their brokers for breaching fiduciary duty. For example, failing to execute on an investor’s stated objectives or completing intended transactions on time are breaches of fiduciary duty.
- Failure to diversify – It’s been a long-standing rule of the stock market world to never put all your eggs in one basket. Diversifying a portfolio means investing in multiple opportunities to maximize gains while minimizing losses. If brokers fail to diversify clients’ investments, their clients will almost certainly incur losses. Brokers must accurately recommend a diverse set of investments to clients.
- Failure to supervise – If brokers fail to adhere to compliance requirements, do not treat investors appropriately, or otherwise violate their professional and ethical commitments, the broker’s investment firm may be liable for damages the broker causes to clients’ investments. Financial advisory firms must carefully oversee their employees’ actions and ensure brokers act in clients’ best interests.
- Ponzi schemes – One of the oldest scams in investment history, a Ponzi scheme promises high returns in a short time, and the earliest investors usually receive just that – but their returns are actually investment capital from later investors rather than gains from their own investments. Ultimately, there is nothing left to pay the latest investors and they can potentially lose significant amounts of money.
- Suitability claims – One of the most common claims of broker negligence is the suitability claim. A suitability claim simply states that a broker mishandled a client’s money by purchasing securities that were unsuitable for the client’s portfolio and investment goals. Recommending unsuitable investments is one of the most common types of broker negligence.
- Churning – Churning is the act of making an excessive number of transactions so the broker earns more money on commissions.
If you’ve been the victim of a financial advisor who failed to meet the appropriate standards of care resulting in significant financial losses, you may be eligible to receive a financial recovery. Talk to an attorney to find out if filing an arbitration claim with the Financial Industry Regulatory Authority (FINRA) is in your best interests. FINRA arbitration is where investors are required to file their investment disputes for resolution.
The FINRA’s suitability rule means brokerage firms and their representatives must only recommend suitable investments and deal fairly with their clients. Stockbrokers must have a reasonable belief that an investment would work for an investor based on his or her profile, which includes a studied understanding of age, financial needs, investment experience, tax status, and risk tolerance, among other things. If a broker recommends unsuitable investments, it is usually proof of negligence.
How an Attorney Can Help
To prove a negligence claim, the plaintiff must have four elements: duty, breach, causation, and damages. In a broker negligence claim, the plaintiff benefits by avoiding the burden of proof of scienter, or intent. In a fraud claim, the plaintiff must prove that the broker intended fraud. In a negligence claim, the plaintiff doesn’t need to prove intent – only that the broker didn’t do something he or she should have done. These can be complicated cases. Most lawyers who specialize in this law have very limited staff and resources. Erez Law has an experienced team of lawyers and staff ready to tackle dishonest brokers.
Proving these four elements requires understanding the duties that your financial advisor owed to you, how the broker or brokerage firm breached those duties, how the breach correlates with your losses, and what damages you sustained due to the breach.
The attorneys at Erez Law help investors recover their mishandled capital and hold negligent and fraudulent brokers accountable for their actions. Erez Law may be able to help victims of broker negligence by investigating the broker and the firm, looking into why you lost money, and ascertaining if a reasonably prudent broker would have acted the same way in similar circumstances. If we can prove during arbitration that the broker violated his duty of care, you may be able to recover your losses. Securities laws are extraordinarily complex, so it’s vital to connect with experienced, reliable investment attorneys to secure compensation for losses from broker negligence. Contact us for a free consultation today.