What is securities arbitration?
Securities arbitration is the process through which an investor brings an action against his/her financial professional for alleged wrongdoing resulting in financial harm to the investor. Unlike most other disputes in professional relationships, when an investor opens an account with a financial professional the account agreement generally requires that all disputes be brought in the arbitration forum, not civil court litigation.
There are many possible causes of action for which an investor may bring an arbitration claim against their financial professional. They include:
- Churning – when a financial professional recommends or executes an unreasonable amount of transactions in order to generate commissions.
- Unsuitability – when a financial professional recommends or purchases investments which are inappropriate given the investor’s profile and objectives.
- Unauthorized trading – when a financial professional executes trades without the permission of the investor.
- Negligence/Breach of Fiduciary Duty – when a financial professional fails to provide the proper service or advice to the investor.
- Misrepresentation/Omissions – when a financial professional commits fraud, provides misleading information or does not provide all of the relevant information to the investor
Financial professionals must adhere to laws, rules and regulations promulgated by government agencies and self regulatory organizations ( i.e. the Securities and Exchange Commission, New Jersey Bureau of Securities, New York Stock Exchange and National Association of Securities Dealers) designed to protect investors. Violations of these laws, rules, and regulations by a financial professional may make them liable for the financial harm suffered by the investor. If you feel that you have been the victim of malfeasance on the part of your financial professional, please contact us immediately so that we may determine if your rights have been violated.
How should I choose a financial professional?
One of the most important decisions many people face is with whom to entrust their financial future. With all of the headlines today detailing the fraud and losses occurring in the securities industry, navigating through the myriad of financial professionals can be a daunting task. However, if you ask the right questions, the process of finding a qualified and trustworthy professional can yield a rewarding professional relationship. Here are five basic questions to ask when looking for a financial professional.
- Whom do you use as your financial adviser? The best way to get the names of qualified and trustworthy financial professionals is to ask people you trust. Your accountant and/or attorney can be a valuable resource in helping you find the appropriate person. Also, friends and family can be a great source of information.
- What is the professional’s investment philosophy? Does the person only follow one investment style. Discuss your goals and objectives. Make sure that they understand them and want to assist you in achieving them.
- Is the professional licensed or do they hold any professional certifications? Don’t be afraid to ask about the person’s educational background. If the person is licensed or certified, contact the licensing or certifying body and see if any complaints have been filed against them. There is no doubt that you have seen the many initials following financial professionals names, e.g. CFP, CFC, CFA, etc. Ask the person about the initials – what do they mean and what did they have to do to get them?
- What other services does the professional provide? Many financial professionals provide additional services, such as insurance brokerage. Determine if the professional can assist you with all of your financial needs or do they only work in a specific area such as providing asset management services. Do the services they provide affect the advice they give you.
- How are they compensated? There are many ways in which financial professionals are compensated. Some earn their fees on a flat fee basis and others are compensated by the companies whose products they sell. Others charge based upon the amount of money under management. These are just a few. Make sure you feel comfortable with the arrangement. Your attorney or accountant can assist you in determining what setup is best for you.
While this is not an exhaustive list, asking these questions will help you establish a solid relationship with your financial professional and keep you prepared in the event that a problem arises. You should be aware that rules and regulations do exist to protect you from fraud and other misdealings involving the securities industry. If you feel that you have been the victim of malfeasance on the part of your financial professional, please contact us immediately so that we may determine if your rights have been violated.