FINRA Looks To Come Down Harder On Brokers And Firms Making Unsuitable Recommendations to Customers

What should happen to a financial advisor (FA) if they provide unsuitable and inappropriate investment advice to their clients?

First, if the unsuitable advice given to a customer caused losses to that customer’s account, the customer has the option to sue the FA in FINRA arbitration.  Investors can recover some or all of their losses due to the bad advice – usually against the firm that the FA worked for in a failure to supervise case.  Arbitration is common for aggrieved investors, and this law firm has successfully represented numerous investors who have been the victims of unsuitable investment advice from an FA.

But what about punishing the broker, so he or she doesn’t do it again to someone else?  Can they go to jail? If not, what does happens?

In some more extreme cases, the FA may have committed a crime and may be prosecuted. However, these cases are in the significant minority.  More often, the FA is pursued by a financial industry regulator – usually the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA), but in some cases it could be a state regulator.

These regulators have the power to suspend an FA’s license to sell securities, fine the FA or both.  The regulators also have the ability to punish the firms that employed the FA for failing to supervise the FA properly.

Just yesterday, InvestmentNews reported that FINRA would be toughening its sanctions against firms and FAs for suitability violations.  According to the article, FINRA will be “tightening the screws on its disciplinary responses” against FAs including increasing its suggested suspensions from one year to two years and the potential for barring FAs and firms that commit fraud.  This announcement comes on the heels of a Department of Labor proposal to impose a fiduciary duty upon FAs when dealing with investment accounts – meaning the FA would have to act in his or her client’s best interest.

Ultimately, steps taken in favor of investor protection whether by the DOL, FINRA or otherwise are steps taken in the right direction.

It is the right of any and all investors who believe they may have suffered losses as a result of unsuitable recommendations of their financial advisor to contact our offices to explore their legal rights and options.  Contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.