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What Does It Take for FINRA to Bar an Investment Advisor?

June 23, 2017 Blog

The Financial Industry Regulatory Authority (FINRA) is a non-governmental organization that has Congressional authorization to regulate the financial services industry, and it is one of the key watchdogs helping to protect individual investors against fraudulent investment losses. Investment advisors working in the United States must register with FINRA, and FINRA has the authority to take disciplinary action against advisors who engage in fraudulent practices or otherwise violate the rules governing the provision of investment advisory services.

Factors Considered in FINRA Disciplinary Proceedings Against Investment Advisors

In most cases, disciplinary action means fines, restitution, censure and a possible suspension. But, FINRA has the authority to bar investment advisors from practice as well. You can find out if an advisor has barred on FINRA’s BrokerCheck® website. What does it take for an investment advisor to get barred by FINRA? In all disciplinary proceedings, FINRA considers a wide variety of factors, including the following:

  • The investment advisor’s disciplinary history and whether the advisor has demonstrated a pattern of misconduct;
  • The affected investors’ level of sophistication and the nature and size of the transaction(s) at issue;
  • Whether the fraud or misconduct occurred in an isolated incident or over an extended period of time;
  • Whether the investment advisor was negligent, reckless or engaged in intentional misconduct;
  • Whether the investment advisor accepted responsibility for the misconduct;
  • Whether the investment advisor had previously received warnings from FINRA or another regulatory authority concerning the conduct in question;
  • Whether the investment advisor has voluntarily undertaken corrective measures (prior to facing disciplinary action) to prevent future instances of misconduct;
  • Whether the fraud or misconduct resulted in injury to third parties, and if so the “nature and extent” of the injury;
  • Whether the investment advisor has voluntarily undertaken to pay restitution, “or otherwise remedy the misconduct;”
  • Whether the investment advisor relied on competent legal or accounting advice in undertaking the inappropriate course of conduct;
  • Whether the investment advisor attempted to conceal the fraud or misconduct, or “to lull into inactivity, mislead, deceive or intimidate a customer, regulatory authorities or [his or her advisory firm];”
  • Whether the investment advisor assisted FINRA with its investigation;
  • Whether the investment advisor attempted to conceal information or provide misleading information during FINRA’s investigation;
  • Whether the fraud or misconduct resulted in monetary gain; and,
  • Whether the investment advisor exercised undue influence over one or more individual investors.

More information is available in FINRA’s Sanction Guidelines.

What Should You Do if You Suspect Investment Advisor Fraud or Misconduct?

If you suspect that you may have suffered investment losses due to investment advisor fraud or misconduct, you can report your advisor to FINRA, and you can also seek to recover your losses through FINRA arbitration. As a national investment fraud law firm, Zamansky LLC routinely represents individual investors in arbitration cases involving unauthorized trades, account churning, excessive fees, misappropriation of funds and other matters.

For more information about protecting your rights as an investor, we encourage you to schedule a free, no-obligation consultation. To speak with an experienced FINRA attorney in confidence, call Zamansky LLC at (212) 742-1414 or inquire online today.