A broker should be a source of appropriate recommendations, transparent information, and honest advice. They are an investor’s connections to Wall Street, and should be recommending suitable investments to their clients and helping them create a diversified portfolio. The broker-investor relationship relies on the ability to trust the broker to provide suitable recommendations and treat their clients fairly. Brokers must act in the best interests of clients throughout the investment relationship.
The basic responsibility held by brokers is the duty of fair dealing. The duty of fair dealing is, in essence, a broker’s promise to disclose all facts relating to an investment, follow client instructions, ensure investments are suitable, and charge fair market rates. Investors trust brokers to steer them in the right direction regarding investments, and advise them candidly.
Brokers have many professional duties during the broker-client relationship, including (but not limited to):
- Making suitable recommendations.
- Making fair and balanced risk disclosures.
- Managing a client’s investment portfolio.
- Disclosing conflicts of interest.
- Researching financial markets.
- Monitoring clients’ investments.
- Reporting information to clients.
The Securities and Exchange Commission (SEC), the Financial Industry Regulatory
Authority (FINRA), the federal securities laws and the state securities laws have strict rules and regulations when it comes to a broker’s conduct. Although these rules exist, there will always be unscrupulous brokerage firms that abuse their position. These firms push their brokers to recommend poor investments in order to increase their own profits at the expense of their clients.
Without truthful and complete disclosures, scheming brokers sell unsuitable investments and mislead their clients to their detriment. Securities fraud and misconduct run the gamut from simple acts of misrepresentation to large and complex ponzi schemes.
It’s a broker’s job to research the market, understand their client’s situation, and recommend investments that are appropriate for them. No broker should compromise your future with unsuitable investments. job to research the market, understand their client’s situation, and recommend investments that are appropriate for them. No broker should compromise your future with unsuitable investments.
Misleading or Incomplete Information
If a broker misleads a client regarding the risk of an investment or fails to disclose material information, this may be a violation of the broker’s obligation to his or her client.
Stockbroker Misconduct Statistics
According to statistics on the Financial Industry Regulatory Authority (FINRA), complaints
by investors have been on the rise since 2012. In 2016 alone there were:
- 3,070 complaints from investors levied against the brokerage firm or broker themselves.
- 1,434 disciplinary actions filed against the responsible party.
- 1,093 actions that were ever resolved.
That means that in 2016, only 75 percent of all investor claims were resolved, while in 2012, almost 90 percent of them were.