Failure to Supervise
Are Brokerage Firms Responsible for the Misconduct of the Financial Advisor They Employ?
Yes. Brokerage firms are responsible for the activities of their employees and financial advisors when acting within the course and scope of their employment. The Financial Industry Regulatory Authority (FINRA) requires that all brokerage firms implement a reasonable system of supervision that is designed to detect unsuitable investment activity, unusual withdrawals, account losses, or portfolio concentration. It is the responsibility of brokerage firm management to ensure that the account activity is consistent with the needs and objectives of the investor. If “red flags” are (or should have been) detected, the brokerage firm has a regulatory responsibility to take corrective action in order to protect the investor.
Brokerage firms are also responsible for monitoring the outside business activities of their financial advisors. For example, if a financial advisor is involved in a privately held business outside of the normal course and scope of his or her employment, the brokerage firm is responsible for ensuring that the financial advisor does not involve customers of the brokerage firm in any such outside business activity whether it be for investment purposes, lending, etc. Such conduct is referred to as “selling away” and is strictly prohibited by FINRA rules and the internal policies of brokerage firms.
The failure to effectively create and implement a reasonable system of supervision violates FINRA rules and may form the basis of a cause of action.
The Wolper Law Firm has extensive experience handling cases involving failed management supervision. If you have experienced losses in your investments, please contact the Wolper Law Firm for a free consultation and case evaluation so that we may determine if failed management supervision was a contributing factor in your investment losses.
Call 954.406.1231 to schedule a free, no-obligation consultation today.