Help your Clients: Watch for Financial Advisor/Stockbroker Misconduct or Negligence

Financial Crime and stockbroker misconduct has increased in recent years. Many of its victims are unaware of their plight until their CPA raises questions about their portfolio of investments.

When a CPA detects a decrease in the value of a client’s annual account statement and there have been no withdrawals, the decrease in value may be because of stockbroker negligence.
The following are the common forms of stockbroker misconduct.

Unsuitable Investments:
The suitability of an investment for a particular person is the basis of the investment process. Suitable investments are those that are appropriate in terms of the investor’s willingness and ability to take on a certain level of risk.

In extreme cases, the unsuitable investments can ruin a portfolio.

In lesser cases, they cause stress to investors. The process of ensuring suitability needs to be monitored by both investors and advisors. Types of unsuitable investments not meeting the objectives of the investor include: overconcentration in Annuities, Private Placements, High-Risk Bonds and Margin Investing along with many others.

Churning in finance is the practice of executing trades for an investment account by a broker in order to generate commissions from the account.


Investors should suspect churning if they see an excessive amount of trading in their account compared to the value of their account. Also, if an investor has purchased a particular product and it then is quickly sold, it may be stockbroker “switching” an investment for the purpose of generating a commission


Investment Fraud/Misrepresentation:
Investment Fraud comes in many forms. The most common are:

• Internet investment fraud is similar to other fraud perpetrated over the phone or through the mail. Fraudsters use a variety of Internet tools.

Ponzi Scheme and Pyramid Schemes are investment frauds that pay existing investors with funds collected from new investors. Their organizers promise to invest your money and generate high returns with little or no risk.

• Promissory notes. Investors agree to loan money to a company for a set period of time. In exchange, the company promises to pay the investor a very high fixed return on the investment. Often the notes become worthless.

Affinity frauds target members of groups, such as the elderly, religious or ethnic communities. The fraudsters often are or seem to be – members of the group. They usually involve “Ponzi” or pyramid schemes.

There are a number of ways your clients could be subject to broker misconduct. If you have questions about Investment Fraud Schemes or about a broker’s management of an account, please contact me at: 313-962-7777 for a free case evaluation.