- What Level of Supervision are Brokerage Firms Required to Observe?
- How do Brokerage Firms Prevent Rule Violations and Harm to Investors?
- What are the “Red Flags” that Reflect a Lack of Adequate Supervision?
FINRA requires that brokerage firms maintain and implement effective supervision systems to prevent violations of financial services rules and harm to the investing public.
Brokerage firms are required to conduct inspections of the branch offices and supervisory reviews to prevent rule violations and compliance with industry rules, including safeguarding customer funds, maintaining books and customer records.
Some of the “red flags” of improper supervision include the following:
- Numerous customer complaints or disputes
- Mis-marking of recommendations by the broker [‘solicited’] as an investment idea of the customer [‘unsolicited’].
- Replacement or exchange of variable annuities
- Excessive transactions without price movement of the security.
- The representatives’ activity triggers numerous ‘exception’ reporting
- Multiple new account form reflective of changes of a customer’s investment objectives and degree of risk tolerance.
- Determination of what follow-up activity took place by supervision once a “red flag” was spotted.
Brokerage Firm Failure to Supervise the Activities of Each Stock Broker & Financial Adviser
Under FINRA Rules, each brokerage and financial advisory firm that is a FINRA member must “design and implement written procedures” in order to properly and effectively supervise the activities of each of its financial advisors, stockbrokers, and other employees. When an individual stockbroker or financial advisor is negligent or acts in an improper manner against the interests of the client and that client suffers damages as a result of such wrongdoing, the firm may be held liable for the investor’s losses.Did You Suffer Losses Due to Brokerage Negligence? Recover Your Losses!
There are also instances in which a brokerage firm may be held liable for failure to supervise without the individual broker or advisor being held responsible for damages. Stockbrokers are required to complete standardized training and pass exams administered by their regulator, FINRA. If it is found that a brokerage firm did not properly train a broker or advisor, or did not ensure the broker obtained the necessary licenses, or furnished the broker or advisor with incomplete information, the brokerage firm alone may be liable for damages caused by the broker or advisor’s negligence or misconduct. Additionally, brokerage firms are responsible for conducting due diligence on the investment and securities products they sell. They are required to develop written supervisory policies and procedures to achieve compliance with state and federal securities laws.
To help us evaluate your chances for a successful recovery for a “Failure to Supervise” claim we offer a free and confidential claim evaluation.