BROKER MISCONDUCT: BREACH OF CONTRACT
When a new client first engages the services of a financial advisor and/or brokerage firm, the client will be asked to sign what is known as a New Customer Agreement or New Account Agreement. This effectively opens the customer's account with the broker and marks the onset of their fiduciary relationship.
FINRA Arbitration vs Jury Trial
If, as is almost always the case, the broker and sponsoring firm are FINRA-registered, the signing of the agreement and all trading subsequent to it will be regulated by FINRA and the SEC.
One "catch" that not every client is fully aware of but certainly should be is that the vast majority of brokerage contracts contain a mandatory arbitration clause. The clause mandates that, in the event of a dispute between the client and the brokerage, the client will be compelled to resolve the dispute through the FINRA arbitration process rather than the State or Federal court system.
This unique feature of the financial securities industry has a huge ramifications in determining what happens once things go wrong between a client and broker. Unlike in the traditional US Justice system, a client who has signed such a clause has waived his right to a trial by jury. Rather, the client's dispute will now have to be resolved through the arbitration process by a panel of 3 arbitrator who are knowledge and experienced in financial securities. Plus, in this context, arbitration awards are final and binding, only subject to review by a court under very exceptional circumstances.
Breach of Contract and Unsuitable Investments
Breach of contract therefore is a cause of action commonly based on the mostly standardized rules and regulations set forth in the New Account Agreement provided by the brokerage to the client. It may also however be based on a failure to follow a client's wishes and instructions in terms of how their money is invested. In this case, there is likely to be some crossover into the realm of unsuitability, or the negligent mismatch of investors with financial products. In both straightforward breach of contract as well as breaches related to failure to follow instructions, mismanagement of the investor account will be an issue in litigation. In many cases, mismanagement will necessarily subsume claims both of breach of contract and unsuitability.
PA & NJ Investor Fraud Lawyers
Our securities attorneys have over a decade of experience helping retail investors recover losses from stock brokers and national brokerage firms. We understand complex financial products and appreciate how stressful losing your wealth to an unscrupulous or negligent advisor can be.
If you or anyone you know has been the victim of investment fraud or broker misconduct, please contact us immediately for a free consultation at 215-462-3330 or by using our online contact form.