Is the Broker Your Adviser or Just a Stock Peddler?

Brokerage firms portray themselves in commercials and print ads as warm, trusted advisors who will guide you through good times and bad, help safeguard and manage your assets, and tailor their approach as your needs change. They’ll repeat these things to you in person when you’re considering whether to open an account. And the firms’ registered representatives will never be referred to as mere brokers. You will be assigned a “financial consultant,” “financial adviser,” or “wealth manager.” In short, brokerage firms actively foster the public perception that an investor can count on the broker’s loyalty, have faith in the broker's recommendations, and trust that the broker will monitor the investor’s accounts and recommend changes as needed.

But be prepared for your brokerage firm to sing a different tune if you dare to seek compensation for wrongdoing by your broker. Brokerage firms uniformly contend in arbitration and court that unless the customer has given them a power of attorney to trade in the account, their only duty to the customer is to make suitable investment recommendations and to complete transactions in accordance with their customer’s instructions. Their obligation to the customer supposedly ends with the completion of each transaction and they have no ongoing responsibility to monitor their customers’ accounts or to provide continuing advice to protect their customers’ interests.

We hear this “limited duty” defense in almost every case, and we counter it with a variety of contrary evidence. For example, the securities industry itself has declared that even entry-level brokers have continuing duties to (1) monitor a customer’s account on a regular basis and (2) ensure that the customer’s investments continue to be suitable if the customer’s needs or objectives change or economic conditions affect a specific stock, a market sector, or the market as a whole. These duties are clearly delineated in a document entitled, “Content Outline for the General Securities Registered Representative Examination (Test Series 7).”

The Content Outline is an outline of subjects that are covered by the securities industry’s basic licensing examination for would-be stockbrokers. A committee consisting of brokers and of professionals who supervise or train brokers developed it, identifying and describing seven critical functions performed by brokers. Under each critical function, the committee then determined the specific job tasks that the broker performs.

The seventh of these “Critical Functions and Tasks of the Registered Representative” reads:

7) Monitors the customer's portfolio and makes recommendations consistent with changes in economic and financial conditions as well as the customer's needs and objectives.

7-1) Routinely reviews the customer's account to ensure that investments continue to be suitable.

7-2) Suggests to the customer which securities to acquire, liquidate, hold, or hedge.

7-3) Explains how news about an issuer's financial outlook may affect the performance of that issuer's securities.

7-4) Determines which sources would best answer a customer's questions concerning investments and uses information from appropriate sources to provide the customer with relevant information.

7-5) Keeps the customer informed about the customer's investments.

Obviously, information like the above directly contradicts the position brokerage firms adopt in arbitration.

It is vital to have counsel with the experience and knowledge to present this type of evidence to arbitrators. The four securities arbitration lawyers of Hermann, Cahn & Schneider have over 100 years of collective experience in the handling of securities arbitrations and lawsuits. If you believe you have been harmed by a broker’s failure to monitor your investments or provide you with timely advice, please contact one of our investment misconduct lawyers today.