Broker Negligence – FINRA Arbitration Attorneys

Investment customers are entitled to a duty of care from financial advisers and brokerage firms when it comes to investment advice and management of their accounts. If an investment professional fails to meet this duty, resulting in investment losses, the investor can file a securities arbitration claim for negligence.

Investors can assert claims for wrongfully caused investment losses based on the securities laws but also based on common law duties imposed on trusted advisors such as negligence, breach of fiduciary duty and fraud.  

Many individuals rely on the expertise of stockbrokers and financial advisors to expand and safeguard their investment portfolios. These professionals are expected to possess specialized knowledge of financial products and provide accurate advice to their clients. When hiring stockbrokers, investors anticipate assistance in growing their investments consistent with their investment objectives and risk tolerance, not jeopardizing their hard-earned savings.

Regrettably, stockbroker misconduct leads to significant  losses for investors annually. If you suspect that your stockbroker or financial advisor has acted improperly  in managing your investment account, you may be able to recover your losses through FINRA arbitration and the help of a securities fraud attorney.

Examples of Stockbroker Misconduct:

Stockbroker misconduct  refers to the failure of a broker or investment advisor to meet the industry standards aimed at safeguarding investors from unreasonable risks. FINRA, which is the Financial Industry Regulatory Authority, has established rules that brokers must adhere to, which are intended to shield investors from fraudulent activities, overreaching, undue influence, and manipulative practices by stockbrokers.

FINRA RULE 2111 (Suitability)

In order to comply with FINRA’s suitability rule, brokers are obligated to recommend only those investments that they deem appropriate for at least some investors. Prior to making such recommendations, the broker is required to disclose the risks and benefits associated with the investment, and take into account the investor’s investment objectives, risk tolerance, financial situation, age, experience, and other investments. This not only ensures that the investor comprehends the recommendation but also that it aligns with their financial goals. Suitability is a vital aspect for all brokers and advisors to consider while providing investment advice to investors.

The primary objective of FINRA Rule 2111 is to regulate the recommendation itself, rather than the specific customer to whom the recommendation is being made. This implies that the rule prohibits the recommendation of a security or investment strategy that is not suitable for any investor.

Misrepresentation or Omissions of Facts

Misrepresentations and omissions can be either fraudulent or negligent. Unintentionally omitting crucial information or misrepresenting significant facts or risks associated with an investment can result in customers agreeing to a transaction or strategy they would have otherwise declined. What happens if a broker recommends a so-called ‘safe investment’ that turns out to be extremely risky? There has to be a reason behind the misrepresentation and that can be a fraudulent action or a negligent misrepresentation. 


Overconcentration of assets can pose a risk to investors. The opposite of diversification, which is one of the fundamental principles of investing, is overconcentration. Financial professionals should advise on a range of investments including stocks, bonds, mutual funds, and exchange-traded funds in order to prevent the risk of holding concentrated stock positions.

Breach of Fiduciary Duty

A breach of this duty can occur when a broker engages in activities that are not in the best interest of the client, such as making trades that generate high commissions for the broker but are not appropriate for the client’s investment goals, or withholding important information that would affect the client’s investment decisions.

Examples of breaches of fiduciary duty can include misrepresenting investment products, churning an investor’s account to generate unnecessary fees, or making unsuitable investment recommendations. When a broker breaches their fiduciary duty, they can be held liable for any resulting financial losses suffered by the investor.

LSC Legal Can Help

If you have experienced broker negligence and a resulting loss in investment, our team of experienced attorneys is here to help. At our law firm, we are committed to fighting for the rights of investors and holding brokers accountable for their actions. We understand the financial and emotional toll that investment losses can take on individuals and families, and we are dedicated to helping our clients recover their losses and achieve the justice they deserve. Contact us today to schedule a consultation and to learn more about how we can assist you in your case.