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Investors Whose Brokers Fail to Follow Their Directions Can Seek to Recover Their Losses in FINRA Arbitration

When you work with an investment broker, you expect your broker to follow your directions and act in your best interests. This expectation isn’t only reasonable, it is also rooted in federal law. Brokers have a legal duty to act in their customers’ best interests—and this duty extends to executing trades in line with customers’ orders.

So, what if your investment broker failed to follow your directions?

Unfortunately, this is not an uncommon scenario. Brokers regularly fail to follow their customers’ directions for various reasons. In some cases, failure to follow direction is a matter of laziness or negligence. In others, it is a matter of brokers taking advantage of their access to their customers’ accounts for their own financial gain.

Brokers Who Fail to Follow Direction Can Be Held Liable in FINRA Arbitration

Regardless of why your broker failed to follow your direction, you can seek to recover your fraudulent losses through arbitration with the Financial Industry Regulatory Authority (FINRA). Failure to follow direction is a common form of broker fraud, and in many cases, it is a clear violation of FINRA’s rules.

Oftentimes, brokers who are accused of failing to follow their customers’ directions will claim that they were exercising their judgment to protect their customers’ financial interests. They will say that they thought the customer ordered a “bad” trade or that the timing of the order wasn’t right. Even if a broker thinks the broker is acting in a customer’s best interests (which often isn’t actually the case), this is not an excuse for ignoring the customer’s directions and causing the customer to suffer investment losses. This is true whether the customer’s directions related to selling a security, buying a security, or pursuing any other type of investment product or transaction.

When Can You File for FINRA Arbitration Based on Failure to Follow Direction?

Failure to follow a customer’s direction, whether with good intentions or bad, is a breach of an investment broker’s fiduciary duty. If a broker is unable to execute an ordered transaction on the market, then the broker must “employ a broker’s broker or some other means in order to ensure an execution advantageous to the customer” under Rule 5310

Investors can pursue claims for failure to follow direction in various circumstances. Some examples of the most common grounds for pursuing claims in FINRA arbitration include:

  • Your broker failed to execute a trade you ordered
  • Your broker failed to execute an ordered trade in a timely manner
  • Your broker executed a trade at the wrong price or for the wrong number of shares
  • Your broker bought or sold the wrong security or asset
  • Your broker placed a market order instead of a limit order
  • Your broker failed to place your order as good-til-canceled (GTC)

When you place an order with your broker, your broker’s role is solely to execute the trade as ordered. If you do not ask for your broker’s advice, and if you have not given your broker discretion to time or alter your trade, then your broker must faithfully execute your order as presented and in a timely manner. Whether your broker is attempting to go “above and beyond” or is hoping to generate a higher commission, the reason why your broker failed to follow your direction is largely immaterial. If your broker failed to follow your direction and you suffered investment losses as a result, you should speak with our investment fraud lawyers about filing a claim in FINRA arbitration.

Did You Grant Your Broker Discretionary Authority?

An issue that often comes up in these cases is the issue of discretion. As an investor, you have the option to grant your broker discretion to execute trades on your behalf. If your broker has discretionary authority over your account, then this can potentially impact your legal rights if your broker effectively overruled you. But, brokers’ discretionary authority is not absolute, and it does not apply in all cases.

As FINRA explains, “[d]iscretionary trading in your account is allowed only if you have authorized a broker to do so in writing and the broker’s firm has approved it.” There are strict rules and regulations around brokers’ discretionary authority—and for good reason. Brokers frequently abuse this authority, making unauthorized trades and churning their customers’ accounts in order to generate excessive fees and commissions. Brokers may also try to claim discretionary authority as a defense against failing to follow their customers’ directions.

However, even if you grant your broker discretionary authority, this does not mean that your broker has free rein to make trades using the funds and securities in your account. Your broker cannot simply ignore your wishes, and in no circumstances can your broker put his or her interests before yours. In cases involving a written grant of discretionary authority, failure to follow direction can be classified as a form of unauthorized trading, and aggrieved investors can—and should—use FINRA arbitration to recover their fraudulent investment losses.

Proving That a Broker’s Failure to Follow Direction Led to Investment Losses

To file a successful claim in FINRA arbitration, not only must you be able to prove that your broker failed to follow your direction (which it may be possible to do with text messages, emails, and account statements), but you must also be able to prove that this failure led to your investment losses. This can require various forms of evidence, and as a result, it is important to have a team of experienced lawyers on your side. At Zamansky LLC, our investment fraud lawyers have decades of experience helping investors hold negligent and fraudulent brokers accountable in FINRA arbitration, and we can use this experience to help you recover your fraudulent losses as well.

Schedule a Free and Confidential Consultation with Our Investment Fraud Lawyers

Do you need to know more about filing for FINRA arbitration based on failure to follow direction? If so, we invite you to schedule a free and confidential consultation at Zamansky LLC. Please call 212-742-1414 or contact us online to schedule an appointment today. 


Client Reviews

“Jake Zamasky and his colleagues represented me in a FINRA arbitration case against a large multinational bank and succeeded in obtaining an award for the full amount of my investment losses. I would highly recommend the Zamansky firm for their experience in securities litigation, their level of detailed research and case preparation, and their ability to effectively fight for what’s right.”

Richard R.

“Throughout my entire case, Jake Zamansky was incredibly responsive and spent time walking me through each step of the process. He is professional and worked with my challenging schedule, even meeting with me nights and on weekends. He knew exactly which turn to take when it came to my case and yet was respectful of any decisions I wanted to make resulting in a positive outcome.”

Donald A.

“Jake Zamansky and his firm represented me in a FINRA arbitration case to recover investment losses. Jake and his team were very professional and worked very hard preparing for trial and then reaching a substantial settlement of our case. I would highly recommend them.”

William E.

“Jake Zamansky represented me in a FINRA arbitration case which allowed me to recover a substantial portion of investment losses. He is truly an expert in this space and I would highly recommend him to those investors who may have been been a victim of investment fraud.”

Chris K.

“Jake and his team did a great job communicating with me throughout the process of my lawsuit. I would recommend him to anyone looking to sue UBS for unethical practices.”

Mike A.
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