There are more than 5,000 licensed brokerage firms in the United States.
Those firms range from the handful of giant wirehouse firms, like Merrill
Lynch, Morgan Stanley, Wells Fargo, and UBS, to the smallest mom and pop
operations with single offices. The vast majority of the brokerage firms
are small. They may have $10 million of assets under management in their
community, and not a penny of insurance. Clients of such firms are at
great risk. If the firm makes a mistake by failing to appreciate the
risks of an investment it recommends, or if it intentionally misrepresents
the risk to earn a commission or fee, the claim for recovery otherwise
available becomes meaningless. The firm cannot afford to pay back the
losses.

One of the first things we do before advising a client whether to bring a
securities arbitration claim with FINRA against a small firm is to
investigate the likelihood of collecting if we prevail on the case. There
are several ways we do this, including reviewing the firm’s most recent
financial statement, determining if the owners of the firm have
substantial assets, etc. But, we have had to advise many investors over
the years that, while they have a clear right to recover their losses, the
chances of collection are so small that we cannot agree to represent them.

What about SIPC

Every stock brokerage firm in America is “insured” by SIPC, the Securities
Investor Protection Corporation. The ubiquitous SIPC logo appears at
website and offices of virtually every broker-dealer in the United States.
Brokerage ads and account statements always say “Member SIPC.” What
people don’t realize that that SIPC offers almost protection to investors
when a firm goes out of business (files a Form BDW with FINRA). The only
real hope of getting help from FINRA is if there was actual theft of
customer assets from a firm or broker that has gone out of business, In
the great majority of cases, SIPC is of no help whatsoever.

What to do?

If you are thinking of opening an account with a firm that is not a
household name, ask if they have liability insurance, the amount of
coverage, and the name of the insurance company. If they don’t have it,
look elsewhere. If you are past that, and have a possible claim against a
firm and are not sure if they will be able to pay an award, we can help.
Click here for a free evaluation, or call our office at 503-222-7475.

If you yourself selected all of the investments in your portfolio, and used your stockbroker as little more than an order taker, then your stockbroker’s responsbilities are usually limited to making sure that your orders are correctly placed.  There are some exceptions for what we call “financial suicide” cases, in which a stock broker would have a responsibility to advise an investor against making foolish choices to purchase clearly inappropriate or unsuitable investments.  But, in most instances, if your investment losses result from investments that were not recommended to you, we would not take your case.

But, where  the financial advisor or stockbroker recommends an investment, and the investor agrees to purchase based on the professional’s recommendation, the law imposes clear duties.  A stockbroker has no responsibility to predict the future, of course, and the fact that a stock declines is not in itself grounds for a claim.  However, a stockbroker DOES have an obligation to make recommendations that are in line with your needs.  A stockbroker cannot recommend a portfolio made up of risky investments if you cannot afford to take the risks that come with that portfolio.  A conservative  investor who is advised to invest all of their  portfolio in preferred bank stocks and loses money probably has a valid claim — not because the preferred stocks lost money, but because of the big risk that always comes  with investing all the money in stocks, and all in one sector.  

The other area where we see finanacial advisors and stockbrokers breaking the law is in not adequately describing the risks associated with an investment.  As anyone who has been reading the business section of their newspaper has learrned over the last month, Wall Street was marketing some very complicated and  risky investments.  Many of the stcobrkers who have been selling CDOs, Auction Rate Securities,  and other complicated debt investments did not understand them themselves.  So how could they have possibly explained those risks to their clients?  The law requires anyone selling investments to disclose all of the important risk factors of the investment.  If that did not happen, you may have a valid claim. 

If you think your investment portfolio was mishandled, please give us a call at 503-222-7475, or go to our Free Evaluation Page and tell us what happened.