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Fiduciary Misconduct by Brokers
Complaints by investors against their stockbrokers
and other investment advisors fall into four
basic categories. The most common claims that
we see are:
- Overconcentration
- Misrepresentation and Omissions
- Unsuitability
- Churning
Overconcentration
One of the main principles of investing is diversification.
If a broker concentrates your portfolio in any
individual investment or type of investment, then
the risk of losses dramatically increases. A broker
who does not diversify his client's portfolio
is potentially liable should that investment decline
in value.
To help us evaluate what you need to bring this
type of claim click
here.
Misrepresentation
and Omissions
A broker is liable to a client if he or she misrepresents
material facts or fails to disclose material facts
to the client regarding an investment, and that
client loses money as a result. Often these misrepresentations
or omissions disguise the risk associated with
a particular investment. A broker has a duty to
fairly disclose all of the risks associated with
an investment.
To help us evaluate what you need to bring this
type of claim click
here.
Unsuitability
Brokers have a duty to understand their clients'
risk tolerances, tax considerations, prior experiences
and appetite for risk, and the level of return
desired. It is the duty of a broker to make recommendations
that are appropriate and suitable given his client's
circumstances. If a broker breaches those duties
and makes unsuitable recommendations for a client,
the broker may be liable to that client.
Good brokers make investment recommendations
that are consistent with the investor's risk
tolerance, needs and investment objectives.
Brokers have a duty to know their clients and
only recommend suitable investments and trading
strategies appropriate for each client. An investment
may be unsuitable if a customer lacks the financial
ability to incur the risk associated with a
particular investment, or if the investment
was not in line with the investor's financial
needs; or if the customer did not know or understand
risks associated with certain investments.
To help us evaluate what you need to bring this
type of claim click
here.
Churning
Excessive trading in your account by a broker
is called churning. Brokers churn accounts in
an attempt to generate commissions. To establish
that your broker has churned your account, we
will have to show that the pattern of trading
activity in your account was excessive. This can
be done in a number of ways:
- calculations to determine the annualized
rate of return that would be necessary to
cover the commissions charged in your account
- the number of times the equity in your account
is turned over to purchase securities
- the purchase and sale trading activity that
occurs in your account.
Investors should beware of brokers that seem to
trade excessively. If a broker is buying and selling
securities in your account to generate commissions
that seem excessive, and he always has some reason
why you should take quick profits, there is a
strong possibility that your account is being
churned. To help us evaluate what you need to
bring this type of claim click
here.
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