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Can FINRA Arbitration Claims Be Brought Against a Bank and Its Employees?

Many clients are asking whether FINRA arbitration claims can be brought against a bank and/or its employees for losses sustained in their investment accounts.  The answer is yes.  There are more than 5,000 commercial banks in the United States.  Along with traditional banking services, many of these banks also provide in house “financial advisors.”  In order to charge their customers more, these bank branch financial advisors encourage bank customers to invest their savings with them.  Now more than ever, bank customers are being pressured into using these services, and their life savings are being invested rather than saved.  This can lead to losses in customer accounts, where customers would have been better off keeping their funds in a savings account.  Malecki Law’s FINRA arbitration attorneys have handled many cases involving claims where customers lost money investing with a commercial bank financial advisor.

Up until Congress repealed the Glass Steagall act in 1999, commercial banks, banks that take in cash deposits and make loans, could not offer investment services.  The Glass Steagall Act separated commercial banks and investments banks and prohibited commercial banks from providing any investment service to its customers.  Once the act was repealed, in order to make greater profit, banks took advantage and began offering these services.  Although banks often incentivize their customers to use these services, such as offering lower fees or free checking, the bank’s investment services, however, are not free.

Investing funds with a bank is no safer than investing funds through an online or traditional brokerage firm.  Customers ordinarily use banks for savings, checking, CDs, and, sometimes, securing a mortgage or other type of loan.  These types of accounts are a bank’s specialty and are FDIC insured, meaning that these are vehicles designed to prevent the loss of money in customer accounts.  Contrarily, investments are not a bank’s specialty and investing with a bank’s financial advisor, similar to making an investment in an online or traditional brokerage account, comes with risk, often incurring higher fees than an online or traditional brokerage account.  Moreover, not only do the investment products offered at banks charge higher fees, but the quality and diversity of investment products is limited, which increases risk to the customer’s investments.

Typically, financial advisors not associated with a bank look out for their customers’ best interests and provide a financial plan specific to each customer’s objectives and risk profile.  On the other hand, bank financial advisors may look out for how many fees they can generate to each client.   Although fee structures vary depending on your financial advisors, typical financial advisors charge either a flat fee or a percentage of your portfolio.  This eliminates incentives for the financial advisor to sell investments not suitable to customers.  Whereas, bank financial advisors are told by the bank what to sell, which generates the high fees and is profitable for the bank, not the customer.

Because bank financial advisors are incentivized to sell investment products, they are also often incentivized to ignore customers’ risk tolerance and objectives (for example, to save towards a down payment).  In some cases, the bank’s financial advisor may not properly explain to the customer the risks associated with investing with the bank, as opposed to keeping their money in a savings account, checking account, or opening a CD account.  In other cases, where the advisor ignores the customers’ objectives and risk tolerance, the advisor recommends and purchases investments not suitable based on their account profile.  In these cases, a customer can bring claims against the bank and its financial advisors.  If you suspect you have a claim against your bank or bank financial advisory, you can contact the New York securities fraud lawyers of Malecki Law to discuss any potential claims.

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