If you suffered losses in your investment portfolio due to your financial professional’s misdeeds, chances are you can only recover those losses through an arbitration program offered by the Financial Industry Regulatory Authority (FINRA).
According to FINRA, the following are the ten most common claims in its arbitrational program through November of 2014. Bear in mind that each filing typically includes more than one claim. For instance, an investor might allege negligence and breach of fiduciary duty in their Statement of Claim.
1. Breach of Fiduciary Duty
These claims arise when your broker or registered investment advisor violates the trust and confidence you placed in them. The degree of fiduciary duty owed by different investment professionals varies, and potential revisions to fiduciary duty standards have recently been under review by FINRA.
You may have a claim for negligence against your broker if the broker fails to comply with industry standards, or fails to act as reasonably prudent broker under the circumstances.
3. Breach of Contract
You and your broker typically enter into a Customer Agreement that requires the broker to comply with the rules of exchanges on which the broker trades. This means you may have a breach of contract claim against your broker if you suffer losses as a result of your broker violating exchange rules.
4. Failure to Supervise
A brokerage firm has a responsibility to supervise its brokers—particularly if the broker has a record of prior misconduct. You may have a securities claim if you suffered losses as the result of your brokerage firm’s failure to supervise its broker.
Your broker’s recommendation must have a reasonable basis in fact. If it doesn’t, you may have a claim against your broker for misrepresentation. Often this claim arises when an investor is peddling a rumor or “hot tip” or perhaps the broker makes an inappropriate comparison e.g. “this investment is just as safe as a CD”
6. Omission of Facts
A claim for omission of facts arises when a broker fails to disclose material (important) information involving a security. Often a broker will omit facts so he or she can convince you to make the trade and thereby ear a commission.
You may have a unsuitability claim if you broker executes a trade on your behalf without having reasonable grounds for believing that the recommendation is suitable for you based on your other holdings, financial situation, and financial needs and several other factors. Before making a trade on your behalf, brokers are required to obtain information from you regarding your financial status, tax status, investment objectives, and other information that would reasonably be required when the broker recommends the trade.
8. Unauthorized Trading
Unauthorized trading occurs when a broker makes a trade without your permission or sends a confirmation in order to cause you to accept a transaction to which you had not actually agreed. Sometimes a broker will call you after a trade has been made and say something to the effect of “were in xyz corp. for 500 shares, ok?” This is an impermissible attempt to gain your authorization for an unauthorized trade after the fact.
Churning is excessive activity in your account, often perpetuated by a broker to generate commissions. There are equations and ratios that can be used to determine if your account has been churned.
10. Margin Calls
A margin call occurs when the broker requires you to deposit additional funds to cover a position you have created on margin (i.e. by borrowing funds to purchase the investment from your broker in exchange for an agreement to pay the broker interest). If you fail to comply with the margin call, you broker will likely liquidate your holdings to satisfy the margin requirements. Claims arise when the account was placed on margin without your authorization, the margin call was executed improperly, or if the risks of margin were not properly explained to you.
If you believe that you have any of the foregoing claims against your broker or financial advisor, you should immediately contact a qualified securities arbitration attorney for a fee consultation.