One of the most common claims our attorneys bring on behalf of clients is failure to supervise. Brokerages are responsible for the majority of their employees’ actions. When a broker or advisor is negligent, or guilty of fraud, an investor can seek compensation from the firm itself or from the supervisors for failure to supervise.
FINRA is introducing new ways to crack down on negligent or fraudulent brokers. In FINRA’s 2017 Regulatory and Examination Priorities Letter the regulator states it “will devote particular attention to firms’ hiring and monitoring of high-risk and recidivist brokers, including whether firms establish appropriate supervisory and compliance controls for such persons.” Along with the creation of an examination unit, which is tasked with identifying high-risk brokers, FINRA also plans to “review firms’ supervisory procedures for hiring or retaining statutorily disqualified and recidivist brokers” and “assess whether firms develop and implement a supervisory plan reasonably tailored to detect and prevent future misconduct.”
This attention to negligent supervision is long overdue. In March of 2016, Investment News reported “professors at the University of Chicago and University of Minnesota found that 7% of financial advisers have been disciplined for misconduct that ranges from putting clients in unsuitable investments to trading on client accounts without permission.” In fact, investment giant Oppenheimer & Co. was cited because nearly 20% of its body of advisors had misconduct on their records.
Supervisors owe it to investors to protect them
When a broker is hired by a firm, the firm is required to record the broker’s history with the Central Registration Depository (CRD). Unfortunately, upon hiring, the firm must rely upon the broker’s self-reported history and BrokerCheck. Once a complaint is filed with FINRA, no longer is the broker’s word taken, but instead, FINRA updates the CRD with the complaint and any findings. Before hiring a broker, a firm should run a FINRA BrokerCheck. Ideally, reviewing the broker’s history can help a firm determine the amount of complaints and the each outcome against the broker. BrokerCheck helps to ensure that the broker complied with FINRA’s regulations and the law in the past. However, a perfect broker check does not mean the firm does not have to continually supervise each and every broker to protect their investors from fraud or negligence.
You may be able to file a claim for failure to supervise if the broker’s manager fails to:
- Adequately evaluate a new broker before he or she is hired
- Review communications between brokers and their clients, especially in regards to orders or customer complaints
- Review any activity in clients’ accounts
- Flag suspicious activity, such as evidence of churning, overconcentration or excessive use of margin
At The Frankowski Firm, we help investors who have sustained losses because brokers and supervisors acted negligently or improperly. Our experienced FINRA arbitration attorneys represent clients throughout the country, and handle complex cases other firms may not be equipped to take on. To learn more about our services, or to schedule a consultation, please call 888.741.7503, or fill out our contact form.