With the rise of consumer rights, most Americans take for granted the right to sue doctors, lawyers and other professionals for malpractice. But there is one form of professional malpractice with which most people, including lawyers, are not familiar. Stockbrokers, investment advisers, money managers and chartered financial analysts, among others, are financial professionals who are required to adhere to strict standards of conduct.
Individuals who work as investment professionals are required to comply with the standards of conduct of the various organizations with which they are affiliated. For example, stockbrokers and brokerage firms are regulated by the Securities and Exchange Commission (SEC) and the states in which they do business. In addition, they are required to comply with the rules of the Financial Industry Regulatory Authority (FINRA, a self regulatory organization) that establishes industry standards. Similarly, Chartered Financial Analysts are required to comply with the Code of Ethics and Standards of Professional Conduct of the CFA Institute. Those who practice under these and similar professional designations have sets of rules and standards that govern their conduct. Failure to comply with the rules and standards of such organizations is a violation of the professional’s standard of care, or what lawyers call negligence or malpractice.
For instance, the applicable standards of care generally impose duties upon investment professionals to deal fairly with investors, to recommend only suitable investments to their investors, and to provide investors with fair and balanced disclosure (both good and bad) about any investment that they recommend. If a broker fails to satisfy these or other applicable standards, then the broker is liable for the damage that the investor sustains as a result of the violation.
A broker’s liability to an investor is often simply a claim for professional negligence or malpractice based on the violation of applicable standards of conduct. Liability can also be based on a breach of contract claim since the relationship between investor and the professional is defined by a written contract. The account agreement (the contract) between the broker and the investor typically specifies the duties owed—such as the duties to comply with industry standards and regulations. This can be especially important in certain situations because the statutes of limitations for breach of contract claims are typically longer than those for negligence claims.
If you have investment losses or problems involving investment malpractice, call the lawyers at Page Perry for experienced representation at (770) 673-0047 or (877) 673-0047 (toll free).