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Areas of Practice | Typical Investment Problems
STOCKBROKER AND SECURITIES DISPUTES SINCE 1973
Many times we are asked, "What are some typical problems with stockbrokers,
investment advisers, and financial planners?" Some typical problems
are:
- Unsuitable transactions. A securities
professional must know a customer’s investment objectives, investment
experience, risk tolerance, and financial
needs and circumstances. Recommendations must be appropriate or "suitable"
for the customer in view of this information. The expected rate of
return is a function of risk in that the higher the risk, the higher
the return required to entice investors to take the risk. A high return
investment most likely is not suitable for a "conservative" or risk
averse investor. Similarly, concentration in risky investments is not
suitable for a large percentage of an investor’s net worth.
- Excessive trading or churning. The
volume of transactions or trading in an account must be consistent
with the customer’s investment objectives
or otherwise suitable for the customer. Sometimes, the securities
professional’s desire to earn commissions or the customer’s belief
that profits can
be made in short-term moves in the market may lead to excessive trading. Studies
show that short-term trading seldom is profitable for the untrained,
non-professional investor.
- Unauthorized trading. A broker must follow the instructions of the
customer and cannot act without authority. When a broker enters a transaction
or trade without the permission or authorization of the customer, he
or she violates duties owed to the customer. Additionally, often a
customer may tell the broker to do whatever he or she thinks ought
to be done. Under industry rules, a broker cannot accept or exercise
discretion over a customer’s account without a written agreement.
- Failure to follow instructions. This is the flip side of unauthorized
trading. With some exceptions, a broker violates duties owed to the
customer when he or she refuses to execute a sell order or to follow
the customer’s instructions.
- Fraud and deceit. Securities professionals must be truthful and
honest with their customers. When they omit or misrepresent material
information to get a customer to make a trade or engage in a transaction,
they violate their duties to the customer.
- Unlicensed activities and unregistered products. Financial
planners, insurance agents, and others occasionally offer or sell
securities – such as promissory notes and business opportunities –without
proper licensing or registration. Some may have broker-dealers but
are acting
without approval. Many of these agents, however, do not have the
financial resources to make good for breaches of duty. The broker-dealers,
when available, usually refuse to stand behind the agents based
upon their failure to get approval to sell the products.
The importance of vigilance. Delay can be a customer’s or investor’s
worst enemy in enforcing his or her rights. Often brokers will argue
that delay means that the customer agreed or otherwise accepted the
breach of duty. Moreover, the potential for recovery in a lawsuit or
arbitration may be affected by statutes of limitation. Some limitations
periods are as short as one year.
For more, please request our brochure
"Problems With Investment Professionals – Prevention Is Better
Than Being A Victim."
Links to Additional Information. The United Securities and Exchange
Commission, California Department of Corporations, and NASD have websites
which allow you check out your broker or investment advisor, learn
more about investing, and gather useful information. As a general rule,
these regulators do not try to get your money back from an unlawful
investment.
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