In most cases, financial advisers must obtain client permission before executing a trade in the client’s account.
The unauthorized purchase or sale of securities by a financial adviser in a customer’s account without the customer’s prior knowledge and authorization could constitute unauthorized trading—a securities law violation.
Unauthorized trading is a time-sensitive issue that should be promptly discussed with a securities attorney.
Discretionary vs. Non-Discretionary Accounts
When investors open an account for a securities firm’s brokerage services, they may give their broker a limited power of attorney that permits the broker to execute trades on the investor’s behalf. This is known as a discretionary account.
A non-discretionary account, on the other hand, typically requires an investment professional to obtain the client’s consent prior to each transaction.
Discretionary accounts do not give advisers carte blanche.
Discretionary and non-discretionary, however, usually are not absolute designations. The adviser and client are free to negotiate a more nuanced arrangement. A client with a discretionary account, for example, may only give the adviser limited autonomous trading authority up to a certain monetary amount.
Regardless of the adviser’s autonomy level, the adviser must execute trades that are suitable for the client based on the client’s financial strategy. A discretionary account does not give the advisor free reign to make inappropriate trades.
Protect Yourself From Unauthorized Trading
Early detection is key in ameliorating unauthorized trading. If you wait too long to raise unauthorized trading accusations, it may give the impression that you gave tacit consent to the trades executed in your account. The sooner you raise a complaint, the better your chance of successfully challenging the unauthorized transaction(s).
With that in mind, here are some ways to protect against unauthorized trading:
- Perform a broker background check. Look for red flags such as disciplinary action and customer complaints.
- Make sure that you and your adviser are on the same page when discussing a transaction.
- Keep notes on all conversations you have with a broker.
- Read your monthly account statements, confirmations, and other important account documents as soon as they are available, and always retain documents for future reference.
- Take immediate action if you spot an unauthorized transaction in your account. Contact the brokerage firm right away and point out the discrepancy. You should also get in touch with a securities litigation attorney.
Investor Remedies for Unauthorized Trading
If unauthorized trading results in investor losses, the investor can pursue a lawsuit or arbitration claim that seeks the recovery of damages.
The damages may be out-of-pocket expenses, losses incurred from an unauthorized trade, or market gains that would have been experienced in the absence of an unauthorized trade.
Investors should have attorney representation when taking on the powerful financial industry. Discuss a possible unauthorized trading claim during a free case review with the Business Trial Group.