Not every investment loss is the fault of your broker. Even the most upstanding, capable broker can put you in an unsuccessful investment. However, in some situations, investors lose substantial amounts of money due to the negligent or fraudulent acts of a broker. While you may be tempted to simply cut your losses and move on to the next investment opportunity, some situations involve legitimate claims that are best handled with the assistance of a skilled investment fraud law firm.

First, it is important to understand the duty of care that the law imposes on a broker when investing client funds. The law only requires brokers to act in a manner that is suitable to a client’s individual financial needs. The difference between this and fiduciary duty lies in the level of commitment. A fiduciary duty requires the broker to place the client’s best interests even above his own. Therefore, even if an investment action will benefit the investor, but not the broker, the broker is still legally bound to act in the client’s favor. A commitment to suitability only requires brokers to take actions that are suitable to the client, which is a lower standard of care when compared to a fiduciary duty.

Types of broker misconduct and negligence

There are numerous actions that call into question the knowledge and skill of a broker. The following are some examples of broker actions that may signify negligence:

• Unsuitable investments. Your broker may make an investment decision that is not suitable to your specific financial needs, which breaches their obligational duty under the law. For example, your broker may have used your entire retirement fund for one extremely risky investment, instead of diversifying your portfolio with various levels of risk.
• Trading without prior authorization. While brokers often trade for their clients without prior authorization, this is not a proper practice under industry standards. As discussed in an article by US News and World Report, if your broker instituted a trade without your consent, and it caused you a loss, you may have grounds for legal action.
• Failure to disclose inherent risks. You rely on your broker to make financially sound decisions and provide you with all necessary information to make the best investment choices. Sometimes, though, brokers purposely misrepresent or omit important information in order to gain your support for their investment decisions. When this nondisclosed information was material to your loss of money on an investment, the broker may be legally liable.

While not all investment losses are due to the negligence or misconduct of a broker, specific situations may give rise to a proper and legitimate lawsuit. If you feel that your investment losses were caused by the negligent or fraudulent acts of your broker, contact the Frankowski Firm today, or call us at 888.741.7503. Our experienced broker negligence attorneys can help.