If you find yourself in the unfortunate position of having lost a lot of money in your brokerage account, you may not be sure why it happened or you may suspect or know that it’s your broker’s fault. Assuming you become certain you have a valid claim – and how you do that is the subject for another article — you can pursue a recovery in arbitration. You have several options regarding representation. You are free to represent yourself. You can hire a non-attorney representative (which we’ll call an “NAR.”) Or you can do what most people do and hire an attorney.
Rest assured that the investment firm and the broker will be represented by lawyers, and perhaps an entire team of lawyers if your losses are substantial. More often than not, those lawyers defend that brokerage firm all over the country, fighting claims just like yours. The firm’s lawyers will be very familiar with the FINRA arbitration rules, and extremely experienced in presenting their client’s defenses. They will be zealous advocates for their clients and they will use the rules to their advantage whenever they can do so.
If you feel comfortable representing yourself, you might choose to go up against the brokerage firm and their lawyers without counsel of your own. That would be extremely foolish and you probably would regret your decision. Enough said.
What to Know About Non-Attorney Representatives
Or you may have been solicited by an NAR and considered using one of its consultants in lieu of retaining a lawyer. NARs, which go by impressive sounding names like Cold Spring Advisory Group, Stock Market Recovery Consultants, and Investors Arbitration Specialists, often make compelling pitches. They’ll tell you they specialize in stock market loss recovery due to broker misconduct. They’ll tell you they’ll calculate your damages and work to bring your claims to a resolution. They’ll assure you that when necessary, they’ll work with their national network of lawyers to bring the case all the way through a FINRA arbitration hearing. Some will tell you their results are better than those of attorneys who focus their practice on representation of investors.
Here’s what they probably won’t tell you:
- Attorneys are bound by a code of ethics, and are deemed fiduciaries (meaning the client’s interest always comes first). Attorneys who violate rules of conduct are subject to sanction by their state bar associations. NARs are not bound by such rules and do not face sanctions if they engage in legal but unethical actions.
- A client can learn whether an attorney has been subject to discipline since disciplinary records are available from state bar associations. NARs have no disciplinary records, since they are not regulated. Yet they may employ former brokers or others who have serious black marks in their pasts. There are many examples. For instance, one NAR was co-founded by a guy who pleaded guilty in 2004 to charges that he and some cronies attempted to collect nearly one million dollars as part of an insurance fraud scam and he lost his license as a public insurance adjuster for running the scam. That information is not disclosed in his bio on the company’s website.
- Attorneys are generally required to either maintain liability insurance or disclose to their client in advance that they are not insured. NARs are not bound by such rules and may not be collectible if they damage you through their own negligence.
- Many states only permit attorneys to represent investors. NARs are, by definition, not staffed by attorneys, and arbitration panels have dismissed cases because the NARs were engaged in the unauthorized practice of law.
- Communications between a client and an attorney are privileged, meaning they can only be divulged by the lawyer under very limited circumstances. Clients are therefore free to tell their attorneys everything, knowing that the words won’t come back to haunt them later. The attorney, knowing the full picture, can frame the client’s case and arguments appropriately. Communications with NARs do not enjoy those privileges, meaning that anything a client tells a NAR must be disclosed upon the proper questioning.
In summary, never go it alone in securities arbitration, and be very skeptical about solicitations from non-attorney representatives.
Hugh Berkson is an experienced investment dispute lawyers. He started out representing brokerage firms, but has been exclusively representing investors since 1999. We have more than 60 years of combined legal experience, and are backed by the knowledge and support of the entire 43-attorney full- service law firm of which we are principals. We are careful to adhere to the applicable ethical and conduct rules that govern our profession. Our clients’ interests come first – always.
If you’ve suffered substantial losses in your investment accounts and you’re not sure why, or if you suspect your broker or investment adviser may be to blame for the losses, please feel free to use the contact box to the right to email us, or call Hugh Berkson at 1-866-932-1295.