Many times investors give their stockbroker or investment advisor contractual discretion to manage their investments. These contracts give the stockbroker authority to use his or her discretion, but only within the parameters set forth by you in that contract. A failure to manage your money consistent with the terms of the agreement is a breach of contract. Below is a discussion of some examples of this behavior.
Promises Made And Promises Broken
When promises are made and consideration paid (or if the person promised reasonably relies on the promise and takes action), a contract is formed. Contracts can be written, oral or even implied by the actions of the parties. While oral and implied contracts are more difficult to prove, legal action can be taken when such contracts are breached.
If an investor opens an account with a financial firm and is led to believe his or her account will be handled in a certain manner, a contract exists between the financial firm and the client. When the account is not handled as promised and losses occur, the investor can consider legal action.
When most investment accounts are opened, a new account agreement is almost always signed. This agreement usually exists in addition to promises made to the clients. Most claims against brokers and other investment advisors involve breach of both written agreements and oral promises.
Securities Regulation Considerations
Regulation of the securities industry is delegated by the Securities and Exchange Commission (SEC) to self-regulatory organizations (SROs), primarily the Financial Industry Regulatory Authority (FINRA). FINRA and other SROs have rules and regulations designed to protect investors. Brokers and their firms must enter into contracts with FINRA and other SROs to become registered representatives and member firms. Investors are the intended third-party beneficiaries of these contracts with the regulators.
Additionally, under the "shingle theory," when a brokerage firm "hangs its shingle," it has a duty to investors to follow the rules and regulations of the securities industry.
If you have lost money because your stockbroker or investment advisor broke its promises to you, you may have a claim worth pursuing. Attorney Tim Van Eman has the experience and resources necessary to review, investigate and aggressively pursue breach of contract claims. For assistance with your investor claim, call Tim Van Eman toll free at 866-856-0433 or complete the online form for a free case evaluation. All initial consultations are free of charge.
Breach Of Fiduciary Duty
As experts in investments and money management, clients often give their stockbrokers discretion to invest in a manner that is reasonable and appropriate for the client's investment objectives. As such, clients rely entirely on the actions of their broker and financial advisor. Courts have determined that this discretion brings with it fiduciary and other legal duties on the part of the broker or financial advisor which, if the discretion exercised is not appropriate, can result in a successful claim against the stockbroker or investment advisor.
Brokers and brokerage firms also have a duty to deal in good faith with their investor clients. Even absent a discretionary agreement with the broker, many jurisdictions also hold that brokers owe their securities customers a heightened fiduciary duty.
A broker's fiduciary duties to an investor may include:
- Monitoring the changing markets for impact on the client's interests
- Placing the client's interests ahead of the broker's or the brokerage firm's interests
- Keeping the client abreast of all transactions that affect the client's interests
- Acting responsibly and with due care in serving the client's interests
- Advising the client on the potential benefits and risks involved with broker recommendations or actions
If these duties are not met, brokers and their firms can be held responsible for abusing the investor's trust and confidence and breaching their fiduciary duties.
If you have lost money because your advisor or brokerage firm has breached fiduciary duties, you may have a claim worth pursuing. Attorney Tim Van Eman has the experience and resources necessary to review, investigate and aggressively pursue your breach of fiduciary duty claim. Call Tim Van Eman toll free at 866-856-0433 or complete the online form for a free case evaluation. All initial consultations are free of charge.
Conflicts Of Interest
Brokers and securities advisors have a duty to operate in good faith toward investors and to act in the investor's interests. Because brokers and brokerage firms have revenue-sharing agreements with specific mutual funds, a conflict of interest can arise, which may go undisclosed to the investor.
When a broker has a revenue-sharing agreement with a mutual fund, the broker may sell or recommend that particular mutual fund to investors over other more suitable funds because the broker receives financial compensation for doing so. This is a violation of the broker's duty to put the investor's financial interests before his or her own.
Attorney Tim Van Eman has the experience and resources necessary to review, investigate and aggressively pursue your conflict of interest claim. For assistance with your investor claim, call Tim Van Eman toll free at 866-856-0433 or complete the online form for a free case evaluation. All initial consultations are free of charge.
Engaging in transactions solely for the purpose of generating commissions is a common occurrence in the brokerage industry. In order to prove an excessive activity or churning claim, the investor must show that the broker exercised actual or de facto control over the churned account and that the trading directed by the broker was excessive, in light of the customer's age, investment objectives, risk tolerance, sophistication and financial well-being.
An analysis of the account is necessary to determine the turnover in the account, based on the volume of transactions in a particular period of time, as well as the costs incurred in the account compared to the assets held. Excessive transactions are actionable if done to enrich the stockbroker at the expense of the client. The following cost ratios and turnover rates are often cited as being evidence of excessive trading or churning:
|Cost Ratio||Turnover Rate||Level of Evidence|
|4 percent||Two times||Inference|
|8 percent||Four times||Presumption|
|12 percent||Six times||Conclusive|
If you have lost money because your advisor or stock broker firm excessively traded or churned your account, you may have a claim worth pursuing. Attorney Tim Van Eman has the experience and resources necessary to review, investigate and aggressively pursue your excessive trading or churning claim. For assistance with your investor claim, call Tim Van Eman toll free at 866-856-0433 or complete the online form for a free case evaluation. All initial consultations are free of charge.