Financial advisers and brokerage firms owe their investment customers a duty of care when giving investment advice and managing an investor’s account.
Investment losses that result from an investment professional’s failure to meet this duty can give rise to a securities arbitration claim for negligence.
Negligence does not rise to the level of willful misconduct (i.e., fraud). Rather, a negligent act falls below the standard that a reasonable, prudent stockbroker or brokerage firm would (or should have) followed under the same circumstances.
Negligent misconduct need not have been intentional.
In other words, negligence indicates that a broker (or brokerage firm) should have taken some action—or should have refrained from taking some action—to protect an investor against an unreasonable risk of harm.
Broker Conduct Standards
FINRA requires financial advisers to abide by securities industry standards of care that include diligence, loyalty, good faith, and fair dealing. In addition, advisers owe their customers a fiduciary duty, which requires advisers to act in their client’s best interests and not to benefit themselves.
There are also specific obligations that investment professionals owe their customers, including:
- Disclosing material information about investments that are discussed with customers.
- Not misrepresenting or omitting material investment information.
- Abiding by the “know your customer” rule.
- Making suitable investment recommendations.
- Obtaining customer consent before executing a securities transaction.
- Paying appropriate attention to—and taking timely action in—a customer’s account to avoid foreseeable losses.
Broker negligence often extends to the brokerage firm, since firms are required to devise and execute appropriate supervisory policies.
Filing a Negligence Claim
Investors who lose money due to stockbroker negligence may bring an arbitration claim for the losses suffered.
The investor must show that:
- The broker/brokerage firm owed the investor a duty;
- The broker/brokerage firm breached that duty; and
- The breach of duty resulted in the investor suffering monetary losses.
The misconduct in question need not have been intentional. The alleged misconduct could simply be a matter of the broker or brokerage firm not doing their job the way they should have. If the misconduct was intentional, however, it could be an instance of fraud, which is a more serious offense.
Negligence claims typically accompany more specific misconduct claims, such as overconcentration and unsuitability.
Free Case Review
Financial professionals make mistakes, but customers need not accept mistakes that cost them money.
Get in touch with a securities arbitration attorney at the Business Trial Group to discuss a potential negligence claim to recover your investment losses.