Both brokerage firms and brokers themselves are under the guidance and rules that govern the United State’s securities markets. Organizations like the SEC (Securities and Exchange Commission) and FINRA (Financial Industry Regulatory Authority) create rules and processes that govern numerous processes within the industry, including the relationship between a client and a broker.
When a broker is trusted to manage assets, they must follow a set of rules. When negligence occurs in following those rules, there could be grounds for arbitration. If an investor sustains losses in their investments because of a broker’s negligence, they could have a FINRA arbitration case.
What is stockbroker negligence?
When the conduct of a stockbroker, advisor, or investment firm, is outside of the correct conduct established by FINRA and other regulatory agencies, then they could face allegations of negligence. FINRA’s rules do not just regulate negligence, they establish guidelines for all aspects of the industry’s day-to-day operations. Ultimately, these regulations help protect both brokers/advisors and investors. These rules are put in place to level the playing field and create the opportunity for fair completion.
Is Misrepresentation Stockbroker Negligence?
Financial professionals often have a duty to disclose public statements. When a financial professional or institution misrepresent or omits materially relevant information, then they could be liable to arbitration. Negligence, in this case the misrepresentation of a fact, does not have to be intentional. Most broker-investor relations require that investors make salient decisions regarding their investments. For these decisions, they require the guidance of their advisors. For these decisions, information (correct/relevant information) is needed. When does this misrepresentation or omission criteria arise? When that information is withheld or incorrect.
FINRA Rule 2010 details how and when misrepresentations on investments and their strategies can be considered negligence. This can include a financial advisor failing to investigate an investment. For example, if an advisor presents an investment strategy, with a certain amount of calculated risk vs. return, they need to back that strategy up with research.
Can you sue for negligence due to misrepresentation?
When someone hires a stockbroker or financial advisor they expect a professional who can help grow and manage their investment accounts. Financial advisors should possess the knowledge to help your nest egg and future wealth, not squander it. Of course, most advisors do just this and most people are satisfied with their brokers. Volatility, and downturns, are expected. But, there’s some downturns that are not caused by market forces but by the negligent actions of those you trust.
How to recover your investments after a loss due to a broker’s misrepresentation
Due to the nature of a broker-investor relationship, meaning the stipulations within the contract, most clients need to go through FINRA arbitration proceedings when they have an issue with their financial advisor.
FINRA offers a platform for the arbitration and mediation of conflicts between investors and their stockbrokers. The arbitration procedure presents a faster resolution compared to the civil court system. It is important to note that FINRA enforces a time limit of six years for initiating arbitration claims related to broker misconduct.
FINRA arbitration, like traditional litigation, requires a deep understanding of the law, the legal process, and the typical claims made against brokers. We always recommend giving a call to a qualified FINRA attorney, like Larry Landsman. If you’ve suffered losses due to negligence, give our team a call.
