Practice Areas FINRA FINRA Arbitration

FINRA Arbitration Attorney

The fiduciary duty rule is among the most confusing and hotly-debated protections afforded to individual investors. While investment advisors owe a fiduciary duty to their clients, investment brokers are not necessarily subject to the same standard. As an investor who has suffered losses due to inappropriate or self-interested investment advice, understanding your rights is the first step on the road to financial recovery. The best way to make sure you understand your rights is to contact a FINRA arbitration attorney like those at Zamansky, LLC.

Who Owes a Fiduciary Duty to Investors?

Under current federal laws and regulations, investment advisors owe a fiduciary duty to their investor clients. This means that they have a legal obligation to make investment recommendations with the investor’s best interests in mind, and they are prohibited from recommending or engaging in trades that put their financial interests before the interests of their client. If an investment advisor makes an investment recommendation because it will generate a commission or high fees – and not because it is a sound investment for his or her client – this would be a classic example of a breach of the fiduciary standard. Other common examples of fiduciary breaches include:

• Intentionally misleading clients into particular investments for personal financial gain (i.e. recommending high-risk investments that can generate significant commissions to low-risk investors);
• Failing to seek the best price and terms for a particular transaction; and,
• Making personal use of an investor’s assets.

However, even in these types of situations, it isn’t always easy to tell whether an investment advisor has breached his or her fiduciary duty. As a general rule, if you have suffered sudden or unexpected losses in your portfolio, you should speak with a FINRA arbitration attorney promptly. Even if you do not have a claim for breach of fiduciary duty, you may have other grounds to recover your losses through arbitration with the Financial Industry Regulatory Authority (FINRA), and acting quickly with all fees to give you the best chance to secure a financial recovery.

What Are Your Rights Against a Broker Who Offers Self-Interested Investment Advice?

Unlike investment advisors, most investment brokers are not subject to a fiduciary duty. While this comes as a surprise to many people, generally speaking, the law treats brokers as salespeople and not as financial advisors.

But, while brokers may not have a fiduciary duty, they are subject to various other legal standards. For example, under FINRA’s rules for registered brokers, brokers must always provide “suitable” investment recommendations. As a result, if you have invested with a broker, you may still have various grounds to pursue a financial recovery. We encourage you to contact us promptly to discuss your legal options.

Federal Protection Against Fraudulent Misrepresentations and Omissions

Rule 10b-5 promulgated under the Securities Exchange Act of 1934 is one of the investors’ greatest protections against investment fraud. In addition to generally prohibiting fraud in investment transactions, it also specifically prohibits investment advisors from making misrepresentations about material facts and omitting facts that are material to investors. A fact is considered “material” under Rule 10b-5 if it is a piece of information that an average investor would want to know before making an investment decision.

Examples of material facts that investment advisors often misrepresent or omit when discussing potential trades with their clients include:

• The risks associated with a particular investment
• Financial or legal risks facing the company selling stocks or bonds
• Broker’s fees, commissions and other costs that will be charged to the investor

These are just a few of the most common examples. If you believe that you were misled into an investment in any manner, you should speak with a FINRA arbitration attorney about your legal rights.

No one is immune to the risks of investment fraud. Scam artists and unscrupulous brokers do not discriminate when it comes to targeting unsuspecting investors.

- Jacob H. Zamansky

Unsuitability Claims Against Brokers and Investment Advisors

When you hire an investment professional, you expect him or her to make recommendations with your best interests in mind. You expect to receive recommendations that take into account your financial condition and risk profile. In other words, you expect to receive “suitable” investment advice.

This expectation is not just reasonable, it is your legal right. Under the Financial Industry Regulatory Authority’s (FINRA) rules for investment brokers, financial advisors “must have a reasonable basis to believe that a recommended transaction or investment strategy…is suitable for the customer, based on the information obtained through…reasonable diligence.” If you have suffered losses in your portfolio due to an unsuitable investment recommendation (or multiple unsuitable recommendations), you may be entitled to recover your losses through FINRA arbitration.

FINRA Requirements for Suitable Investment Recommendations

As stated by FINRA, “[t]he suitability rule is fundamental to fair dealing and is intended to promote ethical sales practices and high standards of professional conduct.” To make suitable investment recommendations, brokers must take into account multiple factors, including the investors’:

• Age
• Other investments
• Financial situation and needs
• Tax status
• Investment objectives
• Investment experience
• Investment time horizon
• Liquidity needs
• Risk tolerance

When providing investment recommendations, brokers must also consider, “any other information the [investor] may disclose,” in connection with the particular trade in question. Taking into consideration all of the relevant investor-specific information, brokers must then satisfy three distinct suitability obligations: (i) reasonable-basis suitability, (ii) customer-specific suitability and (iii) quantitative suitability.

1. Reasonable-Basis Suitability

Investment brokers must have a reasonable basis to believe, “based on reasonable diligence, that the recommendation is suitable for at least some investors.” If a broker does not understand the risks associated with a particular investment or investment strategy, it simply is not possible for that broker to make an informed recommendation. Likewise, if an investment is not suitable for anyone, then it will not be suitable for a particular investor regardless of his or her financial condition and risk profile.

2. Customer-Specific Suitability

Brokers must make all investment recommendations based upon an assessment of whether each particular recommendation is suitable for the individual investor receiving the recommendation. This requires careful, trade-specific consideration of each of the factors listed above.

3. Quantitative Suitability

Brokers must also ensure that their investment recommendations are not “excessive and unsuitable” when viewed in light of an investor’s existing portfolio. Under this component of FINRA’s suitability rule, an investment recommendation can be unsuitable, “even if suitable when viewed in isolation.” According to FINRA, investment turnover rate, cost-equity ratios and use of “in-and-out” trading are all relevant considerations when evaluating quantitative suitability.

No one is immune to the risks of investment fraud. Scam artists and unscrupulous brokers do not discriminate when it comes to targeting unsuspecting investors.

- Jacob H. Zamansky

Recover Investment Losses Resulting From Broker or Investment Advisor Misrepresentations

As with any investment fraud claim, if you are concerned about a possible misrepresentation or omission, it is important that you take action as soon as possible with an experienced FINRA arbitration attorney. It will be helpful for you to collect the following information (if you have it) in preparation for your initial consultation:

• Copies of your investment account statements from prior to and after the loss
• Any emails, texts or other written communications you have from your broker or investment advisor
• Any other documentation you received from your broker or investment advisor relating to the trade (or trades) in question
• Your broker’s or investment advisor’s contact information
• Any specific details you remember or questions you want to ask

Recover Your Losses From Excessive Trading

While brokers and investment advisors need to make trades to make their clients money, there comes a point at which too much portfolio activity can have detrimental effects for individual investors. Typically, however, these detrimental effects often mean profits for the broker or advisor. Excessive trading (also known as “account churning”) can result in huge commissions and fees. Unfortunately, for this reason, it is a common practice amongst unscrupulous investment professionals. The good news is that our FINRA arbitration attorneys can help.

Our Lawyers Outline 3 Warning Signs of Excessive Trading

If you are concerned that your broker or investment advisor may be profiting at your expense, there are a number of warning signs you can look for. As outlined by the Securities and Exchange Commission (SEC), three of the most common warning signs of excessive trading are:

• Trades that you did not authorize suddenly appearing in your monthly account statement
• Frequent trading (or “in-and-out” purchases and sales of securities) in a manner that is inconsistent with your investor profile
• Excessive fees across your entire account or within a particular segment of your portfolio

The SEC also warns, “[b]e aware that excessive trading can occur even if the overall account value increases.  Also, remember that your account statements, trade confirmations, and online account do not disclose all fees.” In other words, even if you are making money overall or if excessive fees are not showing up in your account, you could still be losing out due to excessive trading.

No one is immune to the risks of investment fraud. Scam artists and unscrupulous brokers do not discriminate when it comes to targeting unsuspecting investors.

- Jacob H. Zamansky

Proving Account Churning

For most investors, recovering fraudulent investment losses due to account churning involves filing for arbitration with the Financial Industry Regulatory Authority (FINRA). Registered brokers and brokerage firms are required to submit to FINRA arbitration for investor claims, and arbitration provides an opportunity to recover fraudulent investment losses without the time commitment and hassle of going to court. To recover financial compensation for account churning in arbitration, an investor must be able to prove that:

• The broker had access to and control over the investor’s account
• The broker engaged in conduct that constitutes excessive trading under SEC Rule 15c1-7 or another applicable provision of federal law
• The broker acted with the intent to defraud the investor or profit at the investor’s expense

When seeking to recover fraudulent investment losses through FINRA arbitration, it is essential to have an experienced legal team on your side. At Zamansky, LLC our FINRA arbitration attorneys have decades of experience helping investors secure compensation in FINRA arbitration nationwide. During your free initial consultation, we will examine the transactions in your portfolio to determine whether you have a cause of action for excessive trading (or any other form of investment fraud), and if so, we will take legal action on your behalf at no out-of-pocket cost to you.

6 Key Facts about FINRA Arbitration for Individual Investors

FINRA arbitration is a legal process that results in a legally-binding decision without the need to go to court. FINRA arbitrators are experts in investment fraud, and each year they handle hundreds of cases that result in hundreds of millions of dollars in fines and restitution.

1. You Have Six Years to File Your Arbitration Claim

The “statute of limitations” for seeking to recover fraudulent investment losses through FINRA arbitration is six years. While you don’t want to wait anywhere near this long if you don’t have to, if it has been years since your broker took advantage of you, you could still be entitled to recover your fraudulent losses.

2. If You Win, You Are Entitled to Payment Within 30 Days

If the FINRA arbitrators rule in your favor, you will be entitled to payment within 30 days of the date of the arbitration award. In addition, most FINRA arbitration claims settle, which means that the broker or brokerage firm agrees to compensate the investor for his or her losses.

3. Hiring a Financial Fraud Attorney Isn’t Required, But It Is Strongly Recommended

Although you are not required to hire a FINRA attorney to represent you in arbitration, seeking legal representation is strongly recommended. Not only is the arbitration process intricate and complicated, but you need to be able to prove that you are legally entitled to recover your investment losses.

4. It Can Cost You Nothing Out of Pocket to Hire an Experienced Attorney

At Zamansky, LLC, we typically handle individual investors’ arbitration claims on a contingency-fee basis. This means that our financial interests are fully aligned with yours, and you do not pay anything unless we help you secure financial compensation.

5. FINRA Arbitration is Faster and Less Expensive than Going to Court.

While going to court can take years and will often be prohibitively expensive for individual investors, arbitration provides a faster and less-expensive alternative. Even when a claim goes through the entire arbitration process and to a final hearing, the average time to resolution is about 18 months.

6. About Half of All Arbitration Claims Result in Direct Settlements.

Only a relative small percentage of FINRA arbitration cases – about one in five – go to a final hearing. About half of all investment fraud arbitration claims result in a direct settlement between the parties.

Additional FAQs Answered By A FINRA Arbitration Attorney

What are some common signs of securities or investment fraud?

Common red flags include high-pressure sales tactics, offers that sound too good to be true, investment offers based on “secret tips” or “unknown information,” and investment offers which require immediate action. For instance, many investors were sold oil and gas investments with promises of low or no risk and high yields. These promises were misleading as stock prices plummeted when oil prices fell.

What types of fraud occur?

Fraud related to investments can include pyramid and Ponzi schemes, seasonal oil and gas investment scams, churning of investment accounts to earn excessive commissions, misleading information on investment opportunities, and a variety of other deceptive and dishonest business practices. Both material omissions and misleading statements about investment products can also constitute fraud.

What action should victims take if they suffer investment losses?

Victims should report the fraud to the appropriate regulatory authority and speak with an experienced legal professional to determine what actions may be available to recover compensation for their losses.

Should you join a securities class action?

When fraud occurs, many investors often suffer losses due to the same dishonest behavior. A class action is a lawsuit brought against a defendant in which many people are pursuing claims for the same type of losses. If you become part of the class, you will recover compensation if the class prevails against the defendant – with minimal or no involvement in the legal proceedings. However, when you join the class, you give up your right to bring an individual claim. You should always speak with an experienced investment loss attorney before you decide to participate in a class action lawsuit.

How can I find a FINRA attorney who can help me?

If you suspect you are the victim of fraud in connection with your investment in stocks or other financial products, you should seek a FINRA lawyer with specific experience and knowledge of securities fraud cases. Zamansky LLC is a leading securities fraud law firm that will put its legal knowledge to work for you.

Schedule a Free Initial Consultation with Zamansky, LLC

Unfortunately, in the investment world, fraudulent misrepresentations are common. Whether due to a lack of understanding of a particular security or investment strategy, or an intentional attempt to conceal relevant information (as often occurs when a broker or advisor has a financial interest in a particular transaction), investors are regularly asked to make decisions based upon incomplete or inaccurate information. When this happens and investment losses result, investors are entitled to recover financial compensation. The lawyers at Zamansky, LLC can help you file a claim and seek justice.

Zamansky, LLC is an investment and financial fraud law firm that represents individual investors nationwide. If you are concerned about losses in your investment portfolio, our attorneys can determine if you have grounds to recover financial compensation in FINRA arbitration. To get started with a free and confidential consultation with a top FINRA arbitration attorney, call us at 212-742-1414 or tell us how we can help online.