Securities arbitration lawyer Robert W. Pearce, a Florida based securities lawyer with a practice that is primarily representing investors in FINRA arbitrations against broker dealers and advisors, answers one of the more frequently asked questions: What are the different types of stockbroker misconduct?
My name is Robert Pearce. There are many types of stockbroker misconduct. They vary depending on the product or the strategy that is being recommended, offered, or sold. The most common type of stockbroker misconduct is fraud, misrepresentation, misleading statements, with respect to the nature and mechanics or risks of any particular investment that is being recommended or strategy.
There are fiduciary duties that vary from state to state that impose a higher standard of care on stockbrokers. And when stockbrokers breach their fiduciary duties, you can have a claim. And when there is no fiduciary duty, stockbrokers like any other person, like a doctor, or like an accountant, have to act with a reasonable care. And their failure to act with reasonable care is known as negligence. You can sue a stockbroker for negligence.
The most common claim after misrepresentations and misleading statements is violation of the suitability rule. And today the “Best Interest Rule” imposes fiduciary duty standards. This is a new rule and will be the most violated rule after June 30th of this year.
Another form of stockbroker abuse is excessive trading or Churning. Other claims involve the recommendations of investments that are over concentrated in any particular area or sector, such as the oil and gas sector or the hospitality markets both of which crashed this year. And it’s not that they recommended that you invest in the oil and gas market, or the hospitality or the travel industry, it’s that they over concentrated your investments in those sectors. The claim is they failed to diversify your portfolio, a fundamental principle of investing.
In the context of selling away, which is the recommendation of an investment that has not been authorized by the broker dealer employer. Brokers often do this because there are high, high commissions being paid in connection with transactions that their employer would never approve.
There are mutual fund abuses, such as trying to sell the wrong class. A class of mutual fund shows that many different classes, some of which have higher commissions than others. There are break point violations in connection with mutual funds.
Variable annuity abuse is a common form of stockbroker misconduct. Oftentimes stockbrokers don’t disclose the high surrender fees or the other fees associated with variable annuities.
There are many, many different types of stockbroker misconduct, and that’s why You need an experienced securities arbitration lawyer to tell you whether or not the stockbroker has acted appropriately and whether you have a claim.