Negligence

When you invest with a financial advisor or brokerage firm, it’s important to ensure that they are your fiduciary, and as such, owe you a fiduciary duty. This will allow you to take more effective action if there are losses that you incur due to any negligent conduct on the part of your brokerage. 

When your financial advisors have a duty of care to only give out sound advice that aligns with your investment goals, you can put more confidence in that advice. If you have suffered losses due to the failure of your investment professional to meet this duty of care, you may be able to work with an attorney to recover losses that resulted from that broker or firm’s negligence. 

What Is Negligent Conduct?

Negligence is action or failure to reasonably act, that fails to meet the severity requirements of claims like willful misconduct. Negligence or negligent acts are those that fail to meet the standard of the “reasonable or prudent” course of action that any other broker or investment firm would have taken in the same situation or under similar circumstances. 

It is important to remember that negligent misconduct is different from willful misconduct and does not need to be intentionally committed. This means that negligence only shows that there was some action that should have been taken, or some action that should not have been taken, by the firm to protect the claimant from the excessive risk of harm.

What Are FINRA Broker Standards?

FINRA mandates that financial advisors follow certain industry standards for the securities sector. These standards include qualities like diligence, good faith, fair dealing, and loyalty. In addition to those standards, brokers and financial advisors also owe a fiduciary duty to their customers. This fiduciary duty requires them, ethically and legally, to act in the best interest of the customer, and prohibits them from soliciting any trade that would benefit them personally.

Additional obligations that are owed to customers by their investment professionals include:

• The disclosure of any material information regarding investments that are discussed with or solicited from customers.
• Ensuring that no material information is omitted or misrepresented to the investor.
• Remaining in alignment with “know your customer” standards.
• Making sure to only recommend suitable investment opportunities.
• Only executing securities trades once they have been given consent by the investor.
• Giving the customer’s account the attention necessary to avoid foreseeable losses, and taking timely action to avoid those losses.

Elements Required To File A Negligence Claim

If you believe you may have suffered losses as a result of negligence on the part of your broker or financial advisor, you may be able to bring a negligence claim, provided your claim possesses the three elements required for a valid claim of negligence. 

The investor or claimant must show that:

• The investor was owed a duty by their broker or advisor;
• The broker or advisor breached that duty or otherwise failed in its execution; and
• The damages and losses that were suffered were the direct results of the breach of duty.

Remember that negligence or misconduct does not need to be intentional or deliberate. In many cases, the alleged negligence turns out to simply be a case of the broker not following proper procedure or the firm not doing its job properly. Your attorney will be able to help you decide on the claims that your case may allege. 

Sometimes, the negligence or misconduct is intentional, and in those cases, the claims can become much more serious. They may become claims based on fraudulent activity, such as willful misconduct. Commonly, claims of negligence accompany other claims of more specific types of misconduct, such as unsuitability or failure to supervise.

What Is Gross Negligence?

Negligence becomes gross negligence when the broker understands the potential consequences that can arise from their action or lack of action. One example would be a broker getting information that a particular company may be going under but still moving investor funds into the stock before having more information about the company’s situation. If the information is accurate if the company goes under, any investment into the company’s stock becomes worthless.

What Is Misconduct?

Misconduct is a more severe type of negligence that occurs when an advisor or broker knowingly takes account actions that are financially harmful to your account. Some of the most common examples of broker misconduct include churning, using margin, and outright theft.

Churning Or Excessive Trading

Churning, also known as excessive trading, is when your broker makes more trades than necessary on your account. The purpose of this is to multiply the fees and commissions that they collect on a per-trade basis.

Broker Theft

In some cases, a broker may simply steal funds from an account. This sounds like an obvious crime, but without close monitoring, theft can happen easily. Sometimes the broker will frame the missing money as another type of loss.

Margin Trading

Some brokerages will extend the margin to an investor, which is like trading on credit. If your broker made unauthorized trades on margin, and those trades resulted in losses, you may be able to get those losses back.

What To Do If You’ve Been A Victim Of Negligence Or Misconduct

If you or someone close to you has experienced broker negligence or been the victim of broker misconduct, the first thing you should do is reach out to the securities attorneys and FINRA arbitrators at TorkLaw. You will be able to go over the details of your case in a confidential setting, and we’ll be able to let you know if we can take your case. It’s incredibly important that you speak to an attorney before approaching your broker since large firms have been known to try and eliminate evidence of wrongdoing when facing potential legal action.

If we’re able to take your case, we’ll immediately have you begin to gather crucial documents and account statements to strengthen your case. You will not need any money upfront, and we will only get paid when you collect or are given a judgment. We have decades of experience successfully representing claims of negligence, and we will make sure you recover the compensation you may be entitled to.