Most people believe that losses in their investment accounts are simply part of the risk of investing in the stock market. That is not always correct. Losses are often a fault of the broker. Factors to be considered in assessing the broker's fault are:
Did he recommend unsuitable investments?
Did he ignore your investment program and make unauthorized trades?
Did he push stocks that paid him higher commissions without regard to your best interest?
Did he fail to meet his obligations to be absolutely honest in his dealings with you?
Did he churn your account?
Common Questions
Q What legal duty does my stock broker and brokerage house owe me?
A The broker/brokerage house must absolutely put your best interest first. Your financial interest come before your broker's desire to earn commissions buying and selling stocks.
Q I have an IRA. My broker is constantly selling and buying stocks in my account. He is earning a lot of commissions but my account is stagnant. What type of problem does this indicate?
A It sounds like the broker is churning your account. Churning occurs when a broker excessively buys and sells stock in a client's account primarily to earn commissions, and not to benefit the customer. Churning is often apparent when the stocks being sold grow faster then the ones being bought. As a rule of thumb, if the dollar value of the trades in your account exceed twice the account value for one year, that is a red flag for churning. Churning is illegal. If proven in a legal proceeding, you can recover the excess commissions and perhaps other damages.
Q I'm 62. In 1992 my investment account had $50,000.00 in "blue chip" stocks. The account is only worth $55,000.00 today. My broker says he has been actively managing it. What should I do?
A Your account has probably been severely mismanaged. Your broker may be churning the account to earn commissions at your expense or putting you into unsuitable investments for your age and/or risk capacity. It appears that there has been negligence and, quite possibly, fraud. You should have an expert examine the trades that have been made for you.
Q I'm 56.When I call my broker to buy stock in conservative "blue chip" companies, he pushes me to buy stocks in companies I haven't heard of and which usually end up under performing the blue chips. What's going on?
A Brokers are often paid much higher commissions to push stocks in high risk companies. On the face of it, such stocks are unsuitable for somebody of your age and conservative investment philosophy. If the broker tells you the stock is as good as a "blue chip" when he knows it isn't, he may be committing a fraud on you and mismanaging your account. From your question, it would appear that the broker is putting his interest in front of yours. You should have your account analyzed by an expert.
Q What is an "unsuitable investment" for me? I am 58 and earn $60,000.00 per year as a mid-level administrator at a local hospital?
A An "unsuitable investment" is an investment that is too risky risky because of age, income, financial resources and remaining working life.. At your age and income, you cannot afford to take risk because you do not have enough working years left to recover from a big loss. If your broker has put you into a risky stock, that is an unsuitable investment. You may be able to recover the losses you have sustained.
Q Over the past five years the value of my stock portfolio has grown at only a small fraction of the increase in the Dow Jones Industrial Average and S&P 500. I had requested a conservative investment program of income and growth stocks. Should it have done better?
A The investment plan you describe should have produced earnings more in line with Dow or S&P 500. You may be the victim of unauthorized trades, unsuitable investments or other mismanagement.
Q How can I get help to find out if my account has been mishandled by my broker?
A Contact attorney Jerome G. Quinn
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.