Is Anybody Watching Your Broker?

The financial industry is highly regulated, and for good reason. People entrust their stockbrokers and financial planners with some of the most important decisions in their lives, namely, what to do with their hard earned life savings. Money is important, and especially for the elderly and retired, it cannot always be replaced. If money is lost in bad investments, there might not be time to earn more money back.

When brokers and planners go bad.

And let’s face it, some brokers go bad. Sometimes, brokers steal money from their clients. Sometimes, brokers make foolish or unwise recommendations. The broker might do this because he or she is struggling to meet a sales quota, or maybe he or she is just no good at his or her job.

For this reason, the rules that regulate the financial industry require a formal system of supervision over brokers. In particular, the brokerage firm must have a system of supervision that is reasonably designed to ensure that brokers comply with the various rules and regulations that govern their profession. See FINRA Rule 3110 (the supervision rule).

Among other things, a broker’s supervisor has to do the following:

• Review each and every trade that your broker recommends to determine that it is suitable for you. This means the investment is consistent with the amount of risk you want to take.
• Review correspondence to and from your broker, including e-mails.
• Review all accounts opened by the broker to determine that they are in order.
• Respond to any red flags or other signs of trouble. Most firms have computer systems designed to detect improper patterns of trading, such as frequent trading in and out of the same stocks, or large, sudden losses.

Most importantly, when the brokerage account shows repeated signs of problems and red flags, a supervisor should contact the client to make sure the client is not having problems with the broker. A supervisor cannot rely solely on talking to the broker himself. That’s akin to asking the fox how the chickens are doing. Sometimes, the manager has to go straight to the chickens to find out what’s really going on.

Of course, brokers don’t always like it when their manager talks directly to the client. This sometimes implies that the broker is not doing a good job.

If you are having problems with your broker, do not hesitate to speak to the branch office manager. Likewise, if you have had frequent problems with your account and the branch office manager has never contacted you, this may be a sign of problems.

If you have concerns about your account that are not being addressed by the brokerage firm, contact one of our business litigation attorneys for a free and confidential consultation or call 561-659-7878 or Toll Free 877-915-4040.