Investment professionals and the firms in which they are employed (e.g., advisory firms, financial institutions and brokerage firms) owe their customers a duty of care in maintaining and monitoring their accounts. That is, the investment professional has a duty to exercise the degree of care that a reasonably prudent person would exercise in the financial services industry. When an investment professional’s conduct falls below this standard of care, a customer may have a claim against the investment professional for negligence.
Although each state has its own standard of negligence, there are four common elements to a negligence claim: 1) the existence of a duty; 2) the duty was breached; 3) the breach caused injury to the customer; and 4) the customer was harmed or injured as a result of that breach. State of mind is not an element of the claim – the conduct need not be the result of a willful or intentional act. The conduct need only arise from an act, omission or failure to act that deviates from the industry standards of care. Therefore, even if the investment professional did not intend the consequence of his/her conduct, so long as a “reasonable person” in his/her position would have anticipated those consequences and taken “reasonable” precautions to guard against them, the investment professional is negligent.
Negligence claims are typically asserted in conjunction with other causes of action in a securities arbitration. Examples of companion claims include the failure to: make suitable recommendations consistent with client investment profile; recommend risk management strategies (such as diversification) for concentrated stock positions; conduct reasonable due diligence; avoid taxable events in the rollover of tax qualified accounts; and monitor investor accounts for changes in customer circumstances and market conditions.
Broker-dealers, financial institutions and investment advisory firms can also be the subject of a negligence claim for the failure to supervise and adequately monitor the activities in a customer’s account. For instance, when a firm fails to implement adequate compliance or supervisory policies, procedures and systems, or fails to train its investment professionals of information that they reasonably should have known, the firm may be found liable for negligence if their registered representatives, investment advisors and brokers are found to have violated the securities laws, the rules and regulations of self-regulatory organizations, such as the Financial Industry Regulatory Authority (“FINRA”), and/or the firm’s policies and procedures.
The Law Office of Jeffrey M. Haber can help you determine whether an investment loss is the result of negligence. Customers who suffer losses as a result of negligence may be able to recover their losses in a FINRA arbitration. If you believe your investment professional has acted negligently, or failed to manage your account with the degree of care a member in the securities profession would exercise, contact Jeffrey M. Haber to discuss your rights.