Financial advisors hold positions of trust with their clients, which can put investors at risk of losing money due to broker misconduct. When your broker’s misconduct caused you to suffer significant investment losses, you have the right to seek reimbursement for those losses from the broker or the brokerage firm that employed him or her. Recovering damages in claims of broker misconduct is incredibly complex.
The experienced investment loss attorneys at the Law Offices of Robert Wayne Pearce, P.A., are devoted to protecting the rights of investors. Robert has 40 years of experience as a trial attorney and has represented hundreds of clients in investment-related disputes. Contact us today for a free consultation.
Unauthorized trading is a common form of broker misconduct. According to the SEC, unauthorized trades are those made by a broker without the customer’s permission or authorization.
As a general rule, financial advisors must have a client’s permission or authorization to make trades in their investment account. How financial advisors obtain this permission depends on the type of investment account you have.
Non-discretionary accounts give investors more control over the investment account. If you have a non-discretionary account, your broker must get your verbal or written authorization prior to making any trades in your account. That means you are the final decision maker when it comes to your investments.
Non-discretionary accounts offer investors a more hands-on approach to investing. It may be daunting to consider giving your broker free reign over your investment account. If the thought of someone else being able to make trades in your account without telling you seems too risky, a non-discretionary account is the one for you.
The disadvantage of a non-discretionary account is that you tie your broker’s hands in the face of an unexpected investment opportunity. Rather than making trades immediately, the broker must wait for your consent, and by that time, the opportunity may have passed.
Discretionary accounts, on the other hand, give more authority to the broker managing your portfolio. Brokers managing discretionary accounts do not have to obtain authorization prior to making trades but they must have that authority given to them in a writing signed by the client. Investors place certain limits on the types of securities they wish to invest in or how to balance their portfolio, and the broker is free to trade within those limits without obtaining authorization.
If you have a busy lifestyle or wish to take a more passive role in your investments, a discretionary account will suit your needs.
The main benefit of a discretionary account is giving your broker the authorization to react quickly to investment opportunities without having to contact you first. You eliminate the risk of missing out on a great opportunity because you were unable to give consent fast enough.
Discretionary accounts do have some disadvantages. First, discretionary accounts typically require a higher minimum investment to open. Second, discretionary accounts charge higher fees than non-discretionary accounts since it requires the attention of a financial advisor to constantly monitor the account.
Even in a discretionary account, brokers are limited in their transactions. Brokers are bound by FINRA rules to only make trades that are in the customer’s best interest.
FINRA rules require brokers to act in the best interest of their clients. Despite this expectation, broker misconduct is not out of the ordinary. A broker could make unauthorized trades for a variety of reasons. The top reasons brokers engage in unauthorized trading include:
- Trying to increase their commissions by making excessive trades in the account;
- Preventing discovery of losses sustained in the investor’s account; or
- Seeking another personal benefit through the unauthorized transaction.
Regardless of the reason, unauthorized trading is strictly prohibited. If there are transactions that you did not approve on your monthly statement, it is critical that you contact an attorney as soon as possible.
FINRA has reported a slight decrease in unauthorized trading claims brought against brokers in recent years, shrinking from 263 claims in 2017 to 190 claims in 2020. Unauthorized trading is a form of broker misconduct that is difficult to prove. Brokerage firms argue that if a customer does not object to an unauthorized transaction immediately, that can be interpreted as ratification of the transaction.
Defense attorneys for brokers and brokerage firms contend that by receiving monthly statements outlining the transactions made in their accounts, investors are the ones responsible for monitoring this activity and file a timely complaint when an unauthorized transaction is made.
If you suffered investment losses because of unauthorized trading on behalf of your financial advisor, contact an investment losses attorney at The Law Offices of Robert Wayne Pearce, P.A., to see if you are entitled to damages.
LOOKING TO LEARN MORE: Click here for related articles about Unauthorized Trading.
Hear From Our Clients
At The Law Offices of Robert Wayne Pearce, P.A., we believe the ultimate barometer of our success is surpassing the expectation of our clients.
The following clients have direct knowledge of our firm's processes from the inside and experienced our fierce advocacy.
Hear From Our Clients
"Bob Pearce is the real-life Marvel Hero who fights for small investors against brokerage institutions who manage investors’ hard-earned money carelessly, and even worse, conduct fraud outright."
Bob Pearce is the real-life Marvel Hero who fights for small investors against brokerage institutions who manage investors’ hard-earned money carelessly, and even worse, conduct fraud outright. For years, we were misled by a brokerage firm who told us they would correct the wrong or compensate us for their mistakes. Only after we started working with Bob, we realized how powerful and wonderful it is to have a top legal expert by your side. Bob is immensely detail oriented, knowledgeable, professional, and confident. We are more than happy with the outcome Bob achieved for us within just a few months. Thank you, Bob!- Q Wang -
“Robert Pearce is part of that unusual breed of lawyers that are able to create empathy with clients and thoroughly adopt their cause”
No half efforts here. He and his group of professionals are outstanding strategists that can execute with precise fervor and unyielding determination. Theirs is a huge wave of facts, research, precedents and preparation, that has impressed me in its thoroughness and creativity, and most importantly with the results. No stone goes unturned and no effort is ever spared. In my book, he and they are those of a very rare kind that one wants to keep for a very long time.- Ramon Flores-Esteves -
“Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side.”
Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side. He is the consumate plaintiff's lawyer: smart. dedicated, fully able to try a case but a great negotiator in a mediation. He did a wonderful job for us, fully supporting us through the process and more than holding his own against a large national law firm.- Maurice Z. -
"Mr. Pearce and his staff exceeded all of our expectations."
Mr. Pearce and his staff exceeded all of our expectations. We were able to reach a settlement that was of our complete satisfaction, all within a very smooth, professional and efficient process. Mr. Pearce is now not only our lawyer but our family friend. We highly recommend him and his team!- Severiano L. -
"For the best fighting chance, Robert Pearce is the lawyer you want in your corner."
This law firm is the real deal. We were so lucky that they took our case as they have so much experience in securities and all the wrongdoing that happens in these investment companies where they mislead you and your money (as in our case) into schemes that are not what you think they are. Mr. Robert Pearce is one of the best lawyers around, a truly professional who will fight for you and will tell you as it is all the time. We could not have gone thru this experience if it was not for all the advice, guidance and support he and all of his staff and associates brought to the game. For the best fighting chance, Robert Pearce is the lawyer you want in your corner.- Astrid M. -
"He never felt intimidated and his study of the case and perseverance prevailed at all times."
Attorney Robert Pearce was our lawyer in a case against a Brokerage Firm and I'm witness to his ability and intelligence to deal with lawyers from the most prominent law firm in New York which was the key to recovering much of our losses cheered by their negligence. He never felt intimidated and his study of the case and perseverance prevailed at all times.- Jose A. C. -
"In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars."
No lawyer except Bob said I had a chance of winning. When UBS Lawyers laughingly offered me zero to settle the dispute, Bob became even more determined to prove everybody wrong. Bob was extremely prepared, and always a step ahead of the opposing attorneys throughout the arbitration. In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars.- J. Blanco -
"Every meeting and phone call was made with dedication and desire to help our family every step of the way."
Robert's team is excellent. They are very competitive in what they do and they are very responsible. Every meeting and phone call was made with dedication and desire to help our family every step of the way. Their professionalism, responsibility and empathy assured us that we were in good hands. Recommend to everyone.- Mayra A. -