Stockbrokers serve as the bridge between investors and securities. They buy and sell on behalf of their clients in exchange for commissions. Much of their power comes from their knowledge and experience in the industry. They are uniquely positioned to provide clients with financial advice, giving them tremendous influence on what happens in the markets. Sometimes they are also given discretionary control of investment funds, which allows them to act directly as they wish. This power can be abused to the detriment of their clients and the stock market as a whole.
Types of Misconduct
What is stockbroker misconduct? Well, it can take several different forms. Brokers might recommend unsuitable investments that lead to bankruptcy. They might also misrepresent or omit facts to convince clients that they should pick one thing over another. Whether fraudulent or negligent, the result is the same.
They can be held liable for the resulting losses. Those who have direct control of investments might also engage in excessive trading to rack up a large amount in commissions. They might also trade without permission or fail to follow explicit instructions. Some even try to steal their client’s money through fraud and forgery.
How Widespread Is It?
All of these points should not scare away people who would like to invest in the stock market. It is still, after all, one of the best ways to grow funds over a period of time. There are only a few bad eggs, according to various studies conducted on the subject. Estimates vary due to different methodologies, ranging from 1.3 to 7.8 percent of past and current brokers. The low estimate is for individuals who have been associated with settlements and awards that go beyond a certain amount. The high figure is for those who have financial conduct disclosures that also include customer complaints.
How Can It Be Avoided?
Misconduct can lead to devastating results for the victims. It is vital for investors to vet their candidates before choosing a stockbroker. There are tools that can help in the evaluation of these professionals, although they could use some improvements. For example, it may be possible to check complaints filed against them in the past.
It was also found that those who were registered in multiple states tend to have a higher incidence rate of fraud. People should also be mindful about the brokerage firms that they engage with. When brokers are fired due to misconduct, they tend to switch workplaces. Some companies hire more of these than others.
What Can Victims Do?
Victims can lose their life savings and significant portions of their wealth because of stockbroker misconduct. This could leave them vulnerable, especially after retirement. These professionals have a responsibility to serve their clients well. If they violated this trust, then they could be liable for the losses. A lawsuit can be launched to get compensation through awards or settlements. Hire an experienced stockbroker misconduct lawyer to help you build your case and get fast results. Schedule an initial consultation to discuss the details.