As an individual investor, you may ask your broker to make certain trades for you. But, you will also rely on your broker’s advice in many cases. Good brokers will recommend trades that they believe serve their clients’ investment objectives; and, when clients accept their recommendations, they will earn a reasonable fee in exchange.
Recommending trades also comes with responsibilities. Brokers must make recommendations in their clients’ best interests, and they must avoid putting their own interests first. Generally speaking, this means that they must avoid conflicts of interest, they must not recommend investment products solely because promoters offer high commissions, and they must not make recommendations simply for the purpose of making a sale.
This is where the distinction between “solicited” and “unsolicited” trades becomes important for investors.
Understanding the Difference Between Solicited and Unsolicited Trades
When a trade appears on an investor’s brokerage account statement, the trade will—or at least should—be marked as either “solicited” or “unsolicited” in most cases. While many investors assume that this is simply for record-keeping purposes (if they notice it at all), it actually serves a key investor protection function.
What Is a Solicited Trade?
A trade is classified as “solicited” if it occurs as the result of a broker’s recommendation. The trade is solicited by the broker (as opposed to being requested by the investor). Under the rules of the Financial Industry Regulatory Authority (FINRA), brokerage firms must notate all solicited transactions as such on investors’ trade confirmations. Alternatively, they can leave this notation off of investors’ trade confirmations, in which case all trades are presumed to be solicited.
What Is an Unsolicited Trade?
A trade is classified as “unsolicited” if a broker executes the trade at the request of an investor. To qualify as unsolicited, the investor must propose the trade to the broker—not the other way around. Any suggestion or prompting on the part of a broker is sufficient to qualify a trade as solicited, even if the investor technically asks the broker to make the trade on his or her behalf.
Why Does it Matter if a Trade is Solicited or Unsolicited?
Why does any of this matter? It matters because brokers have the responsibilities we mentioned above when soliciting trades from their clients. Conversely, when a broker simply executes a trade at a client’s request, these responsibilities do not apply. The requirement for brokerage firms to notate trades as either solicited or unsolicited is intended to ensure that investors know when they have the right to pursue a claim for stockbroker fraud in the event that a trade leads to investment losses.
What if a Broker Mismarks a Solicited Trade as an Unsolicited Trade?
Given that solicited trades carry additional responsibilities (and legal risks) for brokers and brokerage firms, in some cases, brokers and brokerage firms will mismark solicited trades as unsolicited. It is important for investors to review all trade confirmations and take note of any solicited trades that have been marked as unsolicited. While this may simply be a mistake in isolated circumstances, it is often a red flag for fraud.
Mismarking solicited trades as unsolicited is itself a form of broker fraud. FINRA Rule 4511 requires brokers and brokerage firms to, “make and preserve books and records as required under the FINRA rules,” and this includes placing proper notations on trade confirmations. If a broker engages in fraud by recommending a trade against an investor’s best interest and the broker’s firm mismarks the trade as unsolicited, both of these acts can potentially give rise to claims in FINRA arbitration.
What Should Investors Do If They Have Concerns About Solicited Trades?
If you believe that your broker has engaged in fraud with respect to a solicited trade and/or your brokerage firm has mismarked a solicited trade as unsolicited, you should discuss your legal rights with a lawyer promptly. FINRA arbitration provides a venue for investors to recover their fraudulent losses without going to court, and registered brokers and firms are required to submit to arbitration for the resolution of investor disputes. At Zamansky LLC, we represent investors in FINRA arbitration on a contingency-fee basis, which means that we do not bill for any fees or costs unless we help our clients recover just compensation.
Questions or Concerns about a Mismarked Solicited Trade? Contact Us Today
For more information about the rules that apply to solicited trades or about your rights as a victim of stockbroker fraud, please contact us to arrange a free initial consultation. To speak with a lawyer in confidence, call 212-742-1414 or request an appointment online now.