Financial advisors owe their clients a fiduciary duty. Among other things, this means promising to put their clients’ interests above their own. Brokers who recommend and sell investments that are unsuitable for a particular client may have broken this promise or violated other laws. If you were burned by your broker in Los Angeles or the surrounding region, securities fraud lawyer Steve A. Buchwalter may be able to help you pursue reimbursement for the money that you lost.How the Fiduciary Duties of Brokers Protect Clients from Unsuitable Investments
A broker who recommends unsuitable investments to his or her clients may have violated a number of principles that regulate broker behavior. Generally, California brokers owe a fiduciary duty to their clients. This means that when recommending a particular investment to a client, a financial advisor must put the client’s interests first. Abiding by the fiduciary duty therefore requires a broker to know the client’s financial situation, tolerance for risk, investment goals, and other details. Failure to understand a client’s situation could constitute a breach of this duty. Furthermore, the broker cannot recommend a security just because it may result in a higher commission or fee. A financial advisor who recommends an unsuitable investment because it would benefit him or her has likely breached the fiduciary duty.
Brokers who recommend unsuitable investments to their clients also may be liable under a theory of negligence if the recommendation was simply a result of the broker’s failure to perform due diligence. As investment advisors need to disclose all material facts to their clients, not disclosing the lack of due diligence may also be a breach of their fiduciary duty. Brokers also sometimes recommend unsuitable investments under circumstances that constitute fraud or misrepresentation. In many cases, an action brought by an investor against a broker who recommended unsuitable investments will allege all or some combination of breach of fiduciary duty, fraud, negligence, and misrepresentation claims.
In addition to the general rules that regulate a broker’s behavior, there are rules that specifically prohibit a financial advisor from recommending unsuitable investments. Section 260.218.2 of the California Code of Regulations requires that brokers have “reasonable grounds” to believe that any recommended investment is “not unsuitable” for a given client, based on the broker’s knowledge of the client’s financial situation, investment goals, and other information.
The Financial Industry Regulatory Authority (FINRA), under authority granted by the Securities and Exchange Commission (SEC), promulgated a similar rule that went into effect in 2012. FINRA Rule 2111 requires brokers to have a reasonable basis to believe that a recommended investment is suitable for a given client, based on a number of factors, including the investor’s age, risk tolerance, and financial situation.
Investors whose brokers have violated either of these rules may have several available remedies, from a traditional negligence or fraud lawsuit to arbitration. A knowledgeable attorney can help you understand your options if you are in this situation.Contact an Experienced Ventura County Lawyer to Discuss an Investment Fraud Claim
Experience can be critical when taking on an unscrupulous or negligent financial advisor. For more than two decades, broker fraud attorney Steve A. Buchwalter has assisted investors from Ventura County and throughout Southern California, including Los Angeles, Beverly Hills, and Pasadena. To schedule a free case evaluation with Mr. Buchwalter, call 818-501-8987 or complete our online contact form.