FINRA - Law Offices of Robert Wayne Pearce

Jul 13, 2021

Understanding FINRA Rule 2111: Suitability

As an investor, you may have heard of FINRA Rule 2111, also known as the suitability rule. But what exactly is FINRA 2111? And how does it affect you and your investments? When you hire a brokerage firm or financial advisor to make transaction or investment strategy recommendations, you expect that they will do so in a manner that is suitable for you and your particular circumstances. Unfortunately, however, this is not always the case. If you have suffered financial losses as a result of unsuitable investment strategies and recommendations by your financial advisor, contact securities law attorney Robert Wayne Pearce today. An Overview of FINRA Rule 2111 Suitability in investing is an overarching concept that describes whether an individual investment is suitable for a client after consideration of that particular client’s characteristics. The suitability rule requires financial advisors to have a “reasonable basis” to believe that a recommended transaction or investment strategy is suitable for their client. A financial advisor determines the suitability of a particular transaction or investment strategy through learning about the investment profile of his or her customer. Experts interpret FINRA Rule 2111 as requiring financial advisors to make recommendations that are in their customer’s best interests. FINRA outlines situations involving financial advisors violating the suitability rule by placing their interests above the interests of their client, including: Financial advisors who recommend that clients use margin to purchase a larger number of securities to increase commissions; Brokers who recommend unsuitable securities with high commissions because of pressure from their firm to sell the securities; or A broker who recommends one product over another with the goal of earning more commissions. Unsuitable investment recommendations lead to thousands of dollars in losses for investors every year based on financial advisors recommending products that are illiquid, speculative, and high-risk. If this has happened to you, contact an experienced investment losses attorney today to get started on your case. Suitability Obligations Imposed by FINRA Rule 2111 Rule 2111 consists of three primary obligations: reasonable basis suitability, customer-specific suitability, and quantitative suitability. Reasonable Basis Suitability Reasonable basis suitability mandates that a financial advisor have a reasonable basis, based on reasonable diligence, to believe that a recommendation is suitable for the public at large. This reasonable diligence should provide the financial advisor with a basic understanding of risks and rewards associated with the recommended transaction or investment strategy. A broker must comprehend the risks and rewards associated with a particular investment. Failure to do so and recommending the investment to a client anyway could result in charges of misrepresenting the investment. If a broker fails to comply with any of these requirements, the reasonable basis suitability obligation is not met. Customer-Specific Suitability Customer-specific suitability involves considering specific details about an individual customer to determine whether a transaction or investment strategy is suitable. A customer’s characteristics that are to be considered during a suitability analysis include: Employment status, Age, Financial situation, Tax status, Experience investing, Investment goals, Risk tolerance, Liquidity needs, and Investment time horizon. The financial advisor should evaluate these characteristics in determining whether the investment or strategy is suitable for that particular customer. Quantitative Suitability The quantitative suitability element evaluates the volume of trades made by a financial advisor. For a quantitative suitability analysis, transactions made in a customer’s investment account are viewed in the aggregate. The question is whether the investments recommended qualify as a suitable strategy overall, not whether each individual transaction was suitable. The quantitative suitability obligation seeks to prevent financial advisors from making excessive trades in a client’s account solely for the purpose of generating commission fees. Contact an Investment Loss Attorney Today FINRA 2111 investment loss cases can be particularly complex. That’s why it is important to have an experienced investment loss attorney in your corner. Since 1980, the attorneys at The Law Offices of Robert Wayne Pearce, P.A., have represented countless investors as they fight for their rights. If you are a victim of broker negligence or misconduct, we want to help. We have recovered over $140 million for well-deserving clients, and we will fight to get you the results you deserve too. Contact our team today for your free case evaluation, and see what we can do for you.

Jul 13, 2021

FINRA Rule 2010: Standards of Commercial Honor and Principles of Trade

FINRA Rule 2010 states that FINRA members must observe “high standards of commercial honor and just and equitable principles of trade” in the conduct of their business. If you think this rule seems broad, that’s because it is. And unfortunately, FINRA members do not always live up to these high standards prescribed in FINRA Rule 2010. So what do you do if your broker or financial advisor has failed to comply with its obligations under FINRA 2010? Broker misconduct costs investors millions of dollars in investment losses each year. Such losses are often the result of fraud, misrepresentation, or negligent supervision of your account. While such misconduct can result in severe financial ramifications for you, fortunately there are avenues to hold these wrongdoers accountable. If you suffered losses that you believe are a result of your broker failing to uphold the high standards of commercial honor and equitable principles of trade, contact The Law Offices of Robert Wayne Pearce, P.A. Discuss your case with an experienced investment loss attorney as soon as possible to see how you may be able to recover. Overview of Other Notable FINRA Rules Typically, FINRA Rules outline the specific conduct prohibited by the rule itself. For example: FINRA Rule 1122 prohibits FINRA members and other individuals from filing membership or registration information with FINRA that contains incomplete or inaccurate information; FINRA Rule 2111 requires brokers to only recommend investments or investment strategies that are suitable for the client; and FINRA Rule 5270 prohibits the front running of block transactions. So where does FINRA Rule 2010 come into play? Oftentimes, investors utilize Rule 2010 to address misconduct not described in other FINRA rules. Rule 2010 operates as a catch-all provision to protect investors from financial negligence and other unethical practices by financial advisors and institutions. What Does Rule 2010 Prohibit? Rule 2010 sanctions brokers for bad faith or unethical “business-related” misconduct. Receiving a sanction under Rule 2010 does not necessarily mean the broker violated the law, even though a securities law violation on its own supports a finding that a broker violated Rule 2010. Conduct deemed unethical or immoral, though not necessarily prohibited by law, authorizes discipline under the rule. Business-Related Requirement FINRA Rule 2010 mandates that the alleged misconduct be business-related to qualify for discipline under this rule. In a 2019 FINRA disciplinary action, a FINRA Hearing Panel explained that the relationship between the FINRA member’s unethical actions and the conduct of his or her securities business do not have to be closely connected. Rather, the Panel implied that Rule 2010 extends to any misconduct that “reflects on the associated person’s capacity to comply with the regulatory requirements of the securities business and to fulfill [his or her] fiduciary duties in handling other people’s money.” Examples of FINRA Rule 2010 Violations Ultimately, every case alleging violation of Rule 2010 requires individual analysis to determine if the misconduct amounts to a violation of the rule. To determine whether the rule was violated, evaluation of both the totality of the circumstances and the context of the misconduct is required. Remember, a Rule 2010 violation occurs even in circumstances when a broker does not commit a violation of state or federal law. Actions considered a violation of Rule 2010 include: Misappropriating funds from clients or an employer; Sharing the confidential information of customers without approval; Forging signatures; Making alterations to important financial documents; Soliciting donations for personal benefit or other unauthorized uses; Misrepresenting financial information to customers; and Refusing to pay attorney fees and other expenses after initiating litigation against a customer. Rule 2010 allegations arise frequently in conjunction with allegations that a broker violated another FINRA Rule. Contact an Investment Loss Attorney to Answer Your Rule 2010 Questions Arguably at the core of securities regulation is FINRA 2010. Without such a rule, FINRA members would have no overarching obligation to conduct their business with such high standards of honor and integrity. Of course, even with Rule 2010 in place, FINRA members will inevitably fall short of these standards. When they do, know you can turn to The Law Offices of Robert Wayne Pearce, P.A. With more than 40 years of experience representing investors and holding their brokers and financial advisors accountable for misconduct, you can be confident that our team has the knowledge and resources necessary to fight for you. Attorney Robert Pearce has a strong record of success, recovering funds for more than 99% of his investor clients. To discuss your case and start the process toward compensation, contact us today for a free case evaluation.

Jul 9, 2021

FINRA Know Your Customer Rule and Investment Suitability—How Does it Apply to You?

FINRA regulates the conduct of brokers in the securities industry to protect investors from suffering losses due to financial advisor misconduct. The agency formulates rules to outline the behavior expected of broker-dealers and financial advisors when dealing with their investment clients. Nevertheless, FINRA receives thousands of customer complaints every year alleging violations of FINRA Rules. FINRA Rule 2090, the Know Your Customer (KYC) rule, and FINRA Rule 2111, the suitability rule, mandate minimum knowledge requirements for brokers when making investment recommendations and commonly appear in these customer complaints. If you suffered investment losses due to unsuitable investment recommendations, The Law Offices of Robert Wayne Pearce, P.A., can help you determine if your broker violated one of these rules. Contact our office today for a free consultation. FINRA Rule 2090: Know Your Customer Rule FINRA Rule 2090, or the Know Your Client rule, requires financial advisors to know the “essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer” when opening and maintaining a client investment account. The “essential facts” described in the rule include details that are required to: Service the account effectively; Satisfy any special handling instructions for the account; Understand the authority of anyone acting on the customer’s behalf; and Comply with applicable laws, regulations, and rules. The KYC rule protects clients from investment losses by requiring their financial advisor to learn detailed information about their personal financial circumstances. The rule protects financial advisors by outlining the essential information about customers at the outset of the relationship, prior to any recommendations. Additionally, the financial adviser receives notification of any third parties authorized to act on the customer’s behalf. The Know Your Client rule acts in tandem with the suitability rule, FINRA Rule 2111. The information learned by financial advisors through the KYC requirement factors into the analysis of whether an investment recommendation is suitable. FINRA Rule 2111: Suitability Alleged violation of investment suitability requirements resulted in 1,220 customer complaints filed with FINRA in 2020 alone, down from 1,580 complaints in 2019. The suitability rule requires financial advisors to have a “reasonable basis” to believe that a recommended transaction or investment strategy is suitable for the customer. A financial advisor determines the suitability of a transaction or investment strategy through ascertaining the customer’s investment profile. Factors involved in a suitability analysis include the customer’s: Age, Investment experience, Financial situation, Tax status, Investment goals, Investment time horizon, Liquidity needs, and Risk tolerance. Numerous cases interpret the FINRA suitability rule as requiring financial advisors to make recommendations that are in the best interest of their customers. FINRA outlines situation where financial advisors have violated the suitability rule by placing their interests above the interests of their client, including: A broker who recommends one product over another to receive larger commissions; Financial advisors who recommend that clients use margin to purchase a larger number of securities to increase commissions; and Brokers who recommend speculative securities with high commissions because of pressure from their firm to sell the securities. Any indication that a financial advisor has placed his or her interests ahead of the client’s interest can support a claim for a violation of the suitability rule. Rule 2111 consists of three primary obligations: (1) reasonable basis suitability, (2) customer-specific suitability, and (3) quantitative suitability. Reasonable Basis Suitability Reasonable basis suitability requires a financial advisor to have a reasonable basis to believe, based on reasonable diligence, that a recommendation is suitable for the public at large. A financial advisor’s reasonable diligence should provide him or her with an understanding of risks and rewards associated with the recommended investment or strategy. A failure to comprehend the risks and rewards associated with a particular investment prior to recommending the investment to a client can result in allegations of misrepresentation or fraud. If a broker fails to perform reasonable diligence regarding either component, the financial advisor violates this obligation. Customer-Specific Suitability Customer-specific suitability involves considering the specific details about an individual customer to determine if a transaction or investment strategy is suitable. The financial advisor reviews the details outlined above to determine the suitability of a particular transaction or strategy for each customer. Quantitative Suitability The quantitative suitability element requires financial advisors to recommend transactions that are suitable when viewed as a whole, not only when viewed in isolation. This element aims to prevent financial advisors from making excessive trades in a client’s account solely for the purpose of generating commission fees. Factors such as turnover rate, cost-equity ratio, and use of in-and-out trading indicate that the quantitative suitability obligation was violated. What Constitutes “Reasonable Diligence” FINRA’s suitability rule requires brokers to exercise “reasonable diligence” in attempting to obtain customer-specific information. The reasonableness of a financial advisor’s effort to obtain such information will depend on the facts and circumstances of each investment relationship. A financial advisor typically relies on the responses provided by the customer in compiling information relevant to the customer’s investment profile. Some situations may prevent a broker from relying exclusively on a customer’s responses, including times when: A financial advisor poses misleading or confusing questions to a degree that the information-gathering process is tainted; The customer exhibits clear signs of diminished capacity; or Red flags exist that indicate the information may be inaccurate. Additionally, the suitability rule requires brokers to consider any other information provided by the customer in connection with investment recommendations. Hiring an Investment Loss Attorney Violation of FINRA Rules 2090 and 2111 result in significant financial losses for investors every year. If you suffered losses because of unsuitable investment recommendations, you have the right to seek compensation from the parties responsible for your losses. Cases against brokers and registered investment advisors can be complex for attorneys without experience in securities law. Robert Wayne Pearce has over 40 years of experience representing investors in disputes against financial advisors and broker dealers. Mr. Pearce has tried, arbitrated, and mediated hundreds of investment-related disputes involving complex securities and FINRA rule violations. In fact, Mr. Pearce serves...

May 7, 2021

FINRA Arbitration in 2021: The Complete Guide

If you lost money in the stock market because of your broker’s bad advice or careless investment practices, would you know where to turn for help recouping your losses? Robert Wayne Pearce and his team with the Law Offices of Robert Wayne Pearce, P.A., possess a tremendous amount of experience fighting for people just like you who pledged their hard-earned money to a securities broker or investment professional who lost most or all of their nest egg. You might have a legal case if you relied on your investment professional to grow and protect your money but lost money instead. Taking on your broker and their firm is not easy. You need a tough, accomplished, and successful FINRA arbitration attorney who knows how to win by your side. Below is a complete guide on FINRA Arbitration in 2021. In this guide, you will learn about FINRA and the steps you can take to help recover your losses. I. FINRA Overview FINRA, the acronym for Financial Industry Regulatory Authority, governs disputes between investors and brokers and disputes between brokers. In this article, we solely concentrate on how an individual private investor files a claim to recover losses against their broker or financial advisor. We will explain how FINRA fits into the securities regulatory scheme. We will discuss how FINRA provides services designed to resolve disputes in a cost-effective manner that is quicker than a traditional court and give some insight into how FINRA‘s arbitration procedure works. Next, we will examine the pros and cons of FINRA arbitration. Lastly, we will discuss how a highly experienced lawyer who has represented numerous clients successfully at FINRA arbitration can help you recover your damages from your broker or financial advisor. What Is FINRA? FINRA is not a government agency. Unlike the Securities and Exchange Commission (SEC), FINRA is an organization established by Congress to oversee the brokerage industry. FINRA is a self-governing body and operates independently from the U.S. government. By contrast, the SEC more broadly regulates the buying and selling of securities on various exchanges such as the New York Stock Exchange, NASDAQ, and the American Stock Exchange. The SEC approves initial public offerings and secondary offerings and can halt trading to avoid a crash if necessary. Additionally, the SEC has law enforcement powers. Along with the FBI and the U.S. Attorneys Office, the SEC can investigate acts surrounding the buying, selling, and issuing of securities. The U.S. Attorney can pursue charges for crimes relating to the stock market, such as insider trading and wire fraud.While, the SEC has the authority to file civil lawsuits against any person or organization violating the securities statutes and the SEC’s rules. How Is FINRA Different from the SEC? FINRA has a different function than the SEC altogether. FINRA is a regulatory agency designed to promote public confidence in the brokerage industry and the financial markets as well. People will not invest if they believe they have trusted unscrupulous financial advisors to protect their economic interests. FINRA ensures that its members comply with the ethical rules of their profession, similar to a state bar for attorneys or a board of registration for medical professionals. Congress granted FINRA authorization to investigate complaints investors make concerning misconduct, fraud, or potentially criminal behavior. As a result, FINRA can discipline its members if the agency determines that a broker violated its professional code. FINRA can assess fines, place restrictions on a broker’s authority, or expel the member from its ranks for an egregious violation. Anyone who suspects their broker or their financial advisor of wrongdoing should file a complaint with FINRA’s complaint center for investors. You should be aware that FINRA’s rules do not restrict you from filing a complaint seeking an investigation into wrongdoing and pursuing monetary damages in arbitration. II. FINRA Alternative Dispute Resolution FINRA provides a forum for investors to resolve their disputes with their brokers or financial advisors. In fact, FINRA boasts the largest securities dispute resolution forum in the US. FINRA offers arbitration services, as well as mediation services, as a means to avoid costly and inefficient litigation in courts. FINRA provides a fair, effective, and efficient forum to resolve broker disputes. FINRA’s goal is to settle disputes quickly and efficiently without the standard procedural and discovery requirements that bog down cases filed in courts. How Does Arbitration Work with FINRA? Arbitration is an alternative to filing a case in civil court. Arbitration tends to be less formal and is designed to process claims more quickly than filing a lawsuit in court. FINRA’s arbitration process involves resolving monetary disputes among brokers and investors. FINRA’s arbitrators can issue monetary judgments and have the authority to order a broker to deliver securities to you if that is a just resolution of the case. An arbitration hearing is similar to a trial in court. The parties admit evidence and argue their side to a neutral person or panel of arbitrators who will decide the case. The arbitrator’s decision, called an award, is the judgment of the case and is final. You should know that you do not have the right to appeal the award to another arbitrator. You may have an opportunity to pursue an appeal in court under limited circumstances. However, you cannot elect to arbitrate your case and then file a complaint in court seeking a trial on the issues decided by the arbitrator. FINRA’s arbitration forum operates under the rules set forth by the SEC. FINRA ensures that the platform serves as it should and facilitates ending disputes. No member of FINRA participates in the arbitration. FINRA merely provides the forum and enforces the rules. Arbitrators decide the cases. The arbitrators typically need about 16 months to issue an award. This is a lot quicker than court, where cases could take years to get to trial. The parties also have the opportunity to resolve the dispute by negotiating among themselves without going to arbitration. FINRA’s Arbitration Forum Protects Investor Confidentiality Arbitration with FINRA is often confidential. The parties...

Nov 28, 2020

FINRA Statute of Limitations: A Brief Overview

Investment brokers have a duty to treat their clients honesty and with integrity. Those who take advantage of, mislead, or steal from their clients shake the investing industry’s foundation. Regrettably, broker misconduct occurs all too often. You need representation from an attorney who has the knowledge, skill, and extensive experience to help you recover your losses if you are a victim of investment broker misconduct. Robert Wayne Pearce and his staff with The Law Offices of Robert Wayne Pearce, P.A., have over 40 years of experience fighting on behalf of investors victimized by broker misconduct. Contact us today to protect your rights.

Mar 2, 2019

A Stockbroker’s Introduction to FINRA Examinations and Investigations

Brokers and financial advisors oftentimes do not understand what their responsibilities and obligations are and what may result from a Financial Industry Regulatory Authority (FINRA) examination or investigation. Many brokers do not even know the role that FINRA plays within the industry. This may be due to the fact that FINRA, a self-regulatory organization, is not a government entity and cannot sentence financial professionals to jail time for violation of industry rules and regulations. Nevertheless, all broker-dealers doing business with members of the public must register with FINRA. As registered members, broker-dealers, and the brokers working for them, have agreed to abide by industry rules and regulations, which include FINRA rules.