How Can A Brokerage Firm Trick You?

Posted by on Mar 8, 2019 in Financial brokerage | 0 comments

Anyone who works alongside a financial advisor knows that there are inherent risks to investing. I always figured that people agreed to take on all of the associated risks when they put their money into the hands of an advisor, but it turns out that you can hold brokerage firms accountable for your losses if they are negligent in advising you properly or disclosing information to you.

Financial advisors make it seem like they have your best interests at heart. They operate on the premise that they win when you win. But the financial sector is a very complex field. There may be situations where your broker could be motivated to mishandle your money in order to make other clients profit. Let’s take a look at some of the reasons you should hire claims against brokerage firms attorneys.

Stockbrokers have a responsibility to do the research and know inherent risks with every investment option they advise towards. If a stockbroker is going to advise that someone invest in the technology sector, or in recreational marijuana companies, they must know the factors at play affecting those markets. They must inform customers of all the risk factors associated with the investments in each market. Failure to do so is considered to be a general breach of fiduciary duty. It is a form of negligence on part of the stockbroker.

Sometimes brokers will partake in the practice known as churning. Churning is unethical and illegal. It occurs when a broker begins to buy and sell securities excessively with another customer’s money in order to create commissions that benefit the broker. Broker’s must have control over a customer’s account in order to partake in churning. This can be spotted when a broker starts to make frequent purchases and sales that do not match the investment goals that you agreed upon.

When a broker invests in securities that have more value than the assets in the customer’s account, this is known as trading on margin. Trading on margin puts investors at a significant risk due to the volatility of stocks and index funds. Customers can end up losing huge portions of their assets by trading on margin. The process itself is legal, but brokers must always make customers fully aware of the practice and its risk before partaking in it. If the broker does not inform customers before they trade on margins, they can be held liable for any losses they incur.

Brokers can also be sued for advising towards investments that do not match what the client has expressed a desire for. Some investors are looking to invest in high risk options, hoping to gain returns that are above average. On the other hand, some investors are looking for safe investments that generate low returns over the course of a long period of time. Stockbrokers have a duty to discuss what a customer is looking for in terms of investment. They also have a responsibility to take this into consideration and advise customers towards the investments that match these needs. A failure to do so is known as improper broker recommendations. This violates the stockbroker fiduciary duties.

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