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Stockbroker And Investment Advisor Misconduct
By: Dennis M. Seaman, Attorney

Dennis Seaman & Associates

Did you lose most of your life savings or retirement assets?
Most Wall Street brokerage firms go to great lengths to convince the investing public that they are staffed with "financial advisors" who care for their clients' financial well-being. Whether sitting on the beach with his clients discussing a future vacation home or giving a speech at the wedding of a client's daughter, the trusted stock broker is held out as a professional advisor who will keep an eye on your portfolio and protect your interests though thick and thin. Nothing could be further from the truth.

Representatives at most brokerage firms are really interested in only two things - making money from their existing clients and finding more clients to make even more money from them. They receive little if any training in such basic concepts as asset class diversification, risk analysis, periodic portfolio review, and investment suitability.

They are salesmen, not professionals, despite the millions of marketing dollars spent by the large brokerage firms every year to convince the unsuspecting public to the contrary.

So when large retirement nest eggs are moved to a brokerage firm and invested as directed by the firm's supposed "financial advisor," most retirees find themselves on the losing end. Frequently, they are steered towards mutual funds or individual stocks that are far too risky for retirees.

Their retirement portfolio is not properly diversified with fixed income investments or other less volatile types of investments. When market conditions change, no one calls and advises them to protect themselves against large losses. To make matters worse, many retirees are sold inappropriate, high-cost variable annuities, an insurance product that almost always pays a large up-front commission to the broker but is simply unsuitable for the client.

In the end, the client is the loser, and the brokerage firm invariably refuses to take responsibility for the excessive losses suffered due to the bad advice given to the client.

Fortunately, there is hope. Despite their efforts to avoid liability, the stock brokers do owe specific duties to their clients. First and foremost, they are required to "know the customer" - by gathering and maintaining pertinent information - and to only recommend investments that are suitable given the customer's financial profile.

Stock brokers also have a duty to disclose important information concerning the recommended investments, including the level of risk associated with the investment. They generally owe a fiduciary duty of good faith and fair dealing, which means that they are not allowed to recommend unsuitable investments, solely because they stand to make a large commission.

In short, brokerage firms can be held liable for unsuitable investment recommendations. If you have suffered excessive losses due to stock broker misconduct, contact us for a free consultation.

Typical Stock Broker Claims include:

Unsuitable Investment Advice

Unsuitability, or unsuitable investment advice, occurs when your money is invested in stocks or other investments that do not match your specified needs.

It is the duty of a stock broker to make investment recommendations to clients that are consistent with the clients' risk tolerance, needs and investment objectives. Suitability is based on a customer's age, income, net worth, education, stated investment objectives and prior investment experience.

Rules governing stock broker conduct require that in recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts disclosed by such customer concerning their financial situation and needs.

An investment may be unsuitable if:

  • A customer does not have the financial ability to incur the risk associated with a particular investment.
  • The investment was not consistent with the customer's financial needs.
  • The customer did not know or understand the risks associated with recommended investments.
  • The customer's portfolio is over-concentrated in risky investments, and not properly diversified among the various assets classes in order to minimize risk.
Did your financial advisor place your savings in high-risk investments or in investments that did not match your specific goals?

Was your 401K or self-directed IRA invested in risky equity investment as opposed to being diversified among the various asset classes (growth equity, value equity, bonds, fixed income, cash, etc.)?

If so, you may have received unsuitable investment recommendations. If you suffered excessive losses as a result, you may have a claim for unsuitability.

If you believe your stock broker caused you to suffer losses due to unsuitable investment advice, contact our law firm for a free consultation. We may be able to help you recover some, if not all, of your losses.

Breach of Fiduciary Duty

Securities dealers and their employees owe a general common law duty of fair dealing to their customers. Indeed, a broker is generally regarded by the courts as a fiduciary. This is especially the case when the securities client is elderly or otherwise unable to fully appreciate the broker's advice.

When a large brokerage firm encourages clients to rely on the advice of registered representatives, who claim to have expertise in the area of investments, the firm cannot avoid the imposition of fiduciary duties. The fidelity required of a broker includes the duty of good faith and loyalty, the duty to use such skill and competence as is common in the profession, and the duty to place the investor's interests before those of the broker.

The customer who is relying on the expertise of the broker has the right to receive pertinent information concerning the broker's recommended course of action, and to receive honest advice intended to assist the client in furthering his or her financial interests.


The broker or investment advisor misled the customer and/or failed to disclose a material fact about an investment that would have affected the customer's decision, had the fact been disclosed. In arbitration, the hearing panel may consider the customer's investment experience, risk tolerance, sophistication, objectives, age, and financial well-being in deciding whether the customer was misled.

Unauthorized trading

If you notice that transactions are occurring in your account without your prior permission or knowledge, those transactions may constitute unauthorized trading. Any transaction that is made in the account without the customer's knowledge or approval, or any transaction that strays from the customer's assent regarding quantity or price, is considered unauthorized trading.

Trading without the customer's prior consent is forbidden unless the customer authorizes the broker in writing to do so. Unauthorized trades often may be voided and the intervening losses recovered.

"Churning" (Excessive Transactions)

Engaging in transactions solely for the purpose of generating commissions is a common occurrence in the brokerage industry. In order to prove a churning claim, the investor must show that the broker exercised actual or de facto control over the churned account and that the trading directed by the broker was excessive, in light of the customer's age, investment objectives, risk tolerance, sophistication, and financial well-being.

An analysis of the account is necessary to determine the "turnover" in the account, based on the volume of transactions in a particular period of time, as well as the costs incurred in the account compared to the assets held. Excessive transactions are actionable if done to enrich the stock broker at the expense of the client.

If you believe that you have been the victim of stock broker or investment advisor misconduct, contact us today at (216) 696-1080 or (800) 593-1080 for a free case evaluation.

Please remember that all claims have time limits, so if you think that you might have a claim, you should not wait to have your case evaluated.

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