BROKER MISCONDUCT: OMISSION
In securities litigation, in order to win in arbitration claimants and their attorneys must prove that a broker and/or broker dealer violated FINRA (Financial Regulatory Agency) rules and regulations.
One of the principal criterion for triggering a violation involves "negligent misrepresentation and omissions of materials facts to customers. " Negligent misrepresentation can take many forms, but typically it revolves around negligent misrepresentation of how risky a particular investment strategy or financial product actually is.
Leaving Out the Risks in Complex Investments
Brokers will often characterize a risky and complex financial product as a safe alternative to say, stocks and bonds, when in fact it is nothing of the sort. In other cases, a broker may conveniently leave out the risks or liquidity issues involved in a certain financial product in order to persuade the customer to authorize its purchase.
This latter is an example of "omission of material facts," wherein the facts are not so much distorted or mischaracterized by a financial advisor as they are simply never mentioned at all. If and when the unsuitability of this hypothetical risky and complex financial product relative to the customer is exposed, not only can litigation focus on unsuitability, but the broker will also be liable for omission of material facts.
Investors Should Ask Their Broker Questions About Their Accounts
In other words, sometimes it's not what your broker tells you, it's what s/he does not tell you that's crucial. When engaging the services of a new financial advisor or brokerage firm, the best way to protect yourself against damages due to omission of facts is to scrutinize every document and application you are given, and to ask questions. Zero in particularly on issues surrounding risk and liquidity, since these are the areas in which financial advisors tend to take the most liberties and use a lot of smoke and mirrors.
If you don't understand something--or perhaps the broker is not explaining something clearly enough--keep asking questions. If in the end, you cannot get a straight answer, you might want to reconsider purchasing the financial product and/or contracting with this broker.
Brokers Have Duty to Explain Why They Recommend Certain Investments
Whether or not you ask questions, however, your financial advisor has a fiduciary duty, stipulated and enforced by FINRA and the SEC, to alert you to any pertinent aspects of a financial product which s/he recommends that you invest your money in. Thankfully, just because you don't ask the right questions does not mean your shady broker is off the hook.
Again, it is your financial advisor's obligation to protect your interests as his or her fiduciary. Failing that, FINRA and its rules exist to protect you. Omission of facts is one legal concept among many that enables that protection.
PA & NJ Broker Misconduct Attorneys
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.