The Financial Industry Regulation Authority (FINRA) and the Securities Exchange Commission (SEC) regulate the conduct of stockbrokers and brokerage firms. Their definition of a stockbroker is an individual or company in the business of buying or selling stocks, bonds, mutual funds, and other securities or investment products on behalf of customers. Generally, a stockbroker trades securities for a client in exchange for a fee. This fee may be charged on each transaction made on a client's behalf or on a percentage of the client's managed assets. Qualified stockbrokers are registered with both the SEC and FINRA. Unfortunately, when stockbroker misconduct happens, it may result in significant losses for unsuspecting clients. Our oil and gas FINRA arbitration lawyers can help you seek compensation for losses resulting from misconduct by an individual stockbroker.Pursuing Compensation from Individual Stockbrokers
Individual stockbrokers usually need to create their own client list and spend a significant amount of time recruiting and providing services to customers. Among other things, stockbrokers need to learn about a customer's financial condition, level of sophistication, risk tolerance, and investment objectives sufficiently to recommend investments that would be suitable for the client.
Under FINRA regulations, stockbrokers must deal fairly with customers and follow what is known as the suitability doctrine. When researching investments for a client, under FINRA regulations, a stockbroker needs to select investments that are suitable for the client's portfolio. The SEC has stated that the two most important considerations in looking at a stockbroker's suitability obligations when making a recommendation are the client's ability to evaluate an investment risk independently and the extent to which the client can exercise independent judgment when evaluating a stockbroker's recommendation. For example, a high-risk oil and gas stock might not be suitable for an elderly retired client who has low risk tolerance and no existing income stream, and who is not sophisticated enough to understand the degree of risk involved in a particular security.
The suitability doctrine applied in a FINRA arbitratifK proceeding is a different standard of care than the fiduciary duty standard that applies to for example registered investment advisors. According to FINRA, an investment advisor is an individual who is paid to provide advice about securities to clients. They are paid for their guidance and experience in managing an investment portfolio, and since they have a fiduciary duty to clients, they must put a client's interests before their own and act without conflicts of interest and with good business judgment. Dual-registered adviser/brokers may have more duties to their clients, including duties that may be characterized as fiduciary.
Individual stockbrokers earn their living through commissions, which means that there may be a conflict between a stockbroker's interest in earning a living and the interests of clients. Thus, if two stocks are equally suitable for a client's portfolio, but one provides a better commission for the stockbroker, the stockbroker may recommend that one. Unlike investment advisors, stockbrokers may have conflicts of interest that they need no disclose eve if they influence their trading recommendations. However, a stockbroker may owe a fiduciary duty based upon multiple factors including the customers relmicen the brokers.
Although stockbrokers make a living through commissions, they are not permitted to trade excessively to earn these commissions. Excessive trading for the purpose of generating commissions is called churning. If a stockbroker has churned your account, you can bring a claim against him or her. You will need to establish that the stockbroker had control over your account, that the stockbroker excessively traded your account, and that the stockbroker acted with scienter.
Stockbrokers must disclose all of the information related to their investment recommendations. They may not provide false or misleading statements, which expose them to the possibility of a fraud lawsuit in the event of losses.Discuss Your Situation with an Oil and Gas la FINRA
Individual stockbrokers owe significant duties to their clients, but they sometimes violate those duties in their rush to make a profit. Our oil and gas FINRA arbitration attorneys have successfully represented investors nationwide in claims against individual stockbrokers in arbitration, as well as in court, for violations of the securities laws. Contact us at (800) 975-4345 or through our online form to schedule an appointment to explore your options.