In the case of investment losses that were avoidable, you may sue your brokerage firm in a claim for failure to supervise. According to the rules set forth by FINRA, a brokerage firm is obligated to implement procedures and policies that facilitate the monitoring of all the activities their brokers carry out. Their supervisory role is a requirement to protect their investors from losses and investment fraud.
When there has been a failure to screen a new broker, or ensure they are trained and licensed before hiring them, the liability may fall on the brokerage firm and not the individual broker. The brokerage firm may also be liable when they have failed to maintain continuous monitoring of their brokers’ account activities, communications, and customer complaints.
The following is an overview of how liability shifts in an investment loss claim.
When Is a Brokerage Firm Liable?
Many investors are often unaware that their investment losses are not always the sole responsibility of the financial advisor. In some cases, the entire brokerage firm may be potentially legally responsible for the misconduct that led to your losses.
Therefore, it is essential to acknowledge the fact that the brokerage may be held liable for negligence. Often, a brokerage firm’s negligence is a crucial factor in enabling individual financial advisors to go ahead and commit fraud. You can sue the brokerage firm when the ill-actions committed by the broker or advisor would have been prevented, avoided, or detected had they practiced due supervision.
The Securities and Exchange Act sets out a law referred to as the control person liability standard. The law dictates that firms will be held liable for their representatives’ (brokers and advisors) misconducts unless they had purposely acted in good faith and did not indirectly cause the misconduct their representative performed.
However, there’s a lot that goes into proving a brokerage firm was negligent and their related misconduct is what led to your loss. Consider hiring an investment loss attorney at Wolper Law Firm to conduct the required extensive investigation and organization of facts to build up the proper case.
When Is the Financial Advisor Liable?
All financial advisors, including investment advisors and stockbrokers, owe their clients a fiduciary duty. Fiduciary duty refers to the highest possible standard of care; it requires the financial advisors to do the following:
- Put the interests of the client ahead of their own
- Act in the best interest of the client
- Execute all their professional responsibilities with the highest possible level of care and skill
When a financial advisor fails to meet their fiduciary duty, they will be held liable for negligence. If their negligence contributed to your monetary losses, then you may sue them and have them legally responsible for your damages. The following are examples of forms of negligence by a financial advisor that may warrant a claim:
- Over-concentration of investments
- Selling away
- Unauthorized trading
- Offering unsuitable recommendations for investments
- Guaranteeing unsubstantiated outcomes
- Buying in multiple, smaller increments to increase their commissions
- Ponzi schemes
Suppose you have suffered a significant amount of losses due to such negligent or fraudulent activities of a financial advisor. In that case, you can sue the advisor, their brokerage firm, or even both to recover your losses. However, the list above is not exhaustive; explain your circumstance to a FINRA attorney to analyze your case.
Make Your Claim
If you are a victim of stockbroker negligence or broker fraud, you are entitled to receive fair and total compensation for your financial losses. Winning such cases can, however, get quite challenging. The claims processes are somewhat complex, and you can already expect that the defendant (the brokerage firm or financial advisor you are suing) will aggressively fight back the allegations.
Therefore, if you even slightly suspect that you were a victim of fraud, it’s vital that you begin the process by consulting an attorney. An investment loss attorney will guide you through the proper steps to investigate and file a claim without negatively affecting your claim in the process.