Stockbrokers and brokerage firms have ethical and legal duties in managing their clients’ portfolios. Of course, market fluctuations are a reality and no investment comes with a guarantee, but a Tampa Stock Fraud Lawyer can explain that there are circumstances when a stock broker may be liable for financial losses.
Standard of Care
Although the standard to act in the clients’ best interests is a generic one, a Tampa stock fraud lawyer understands what is proper is based on a number of specific factors unique to each client:
- The client’s net worth
- The client’s long- and short-term goals
- The client’s risk tolerance
- The client’s stated preferences
Proving a Case
Largely due to the inherent uncertainties in financial markets, lawsuits against brokers are not common, and recoveries even less so. Nevertheless, a strong case may be developed based on solid evidence that indicates the presence of one of the following factors.
Churning
By definition, this means excessive trading in a client’s account to generate commissions. One way to establish churning, for example, is to calculate the annualized rate of return for the account that would be necessary to cover the commissions charged. Courts often look to the number of times the investment capital has been reinvested in one year.
Over-Concentration
This means placing all or a significantly large percentage of a client’s asset in one investment or one classification of investments. A fundamental rule of investing is diversity. A failure to diversify could signal a broker’s interest in a particular investment or a negligent failure to fully understand the true nature of a portfolio’s concentration.
Unsuitability
A broker has a duty to recommend only those investments that fit within the client’s goals, preferences and stated risk tolerance. The issue becomes more a question of whether the investment strategy was proper rather than did the broker pick the right stock.
Warning Signs
The following are signals that may indicate some potential for concern:
- A difficult-to-reach broker
- Statement transactions that are difficult to comprehend
- Statement transactions that are unfamiliar
- Debits and credits that make no sense
- A portfolio losing value in an “up” market
Contact a Tampa Stock Fraud Lawyer for Legal Advice
If you have lost money and have any questions regarding your broker’s conduct or involvement in that loss, you need answers from a Tampa stock fraud lawyer. Begin with a call to Savage, Combs & Villoch, PLLC at 813-200-0013.