Why it is Important to Know Your Broker’s Background

In 2023, records showed there are approximately 628,000 registered brokers, licensed through more than 3,300 brokerage firms. As a customer of a brokerage firm, you should be very careful about who you trust to safeguard and invest your life savings, as there are many instances where brokers and brokerage firms violate the rules that are designed to protect the public investor. For example, FINRA, the regulatory authority charged with supervising brokers and broker/dealers, reported the following scary statistics for 2023:

• 11,003 investor complaints
• $ 88.4 Million in fines
• 610 disciplinary actions
• $ 7.5 Million in restitution to harmed investors
• 257 brokers were suspended
• 178 brokers were barred from the industry
• 4 firms were suspended
• 5 firms were expelled

These complaints, disciplinary actions, fines, suspensions, customer complaints, etc. all must be reported by the individual broker and the brokerage firm. Those reports can be found through one or more free websites, but most customers will not take the time to search for their broker, and most customers won’t know how to interpret just how meaningful the reported information may be. Should you hire that broker? Should you do business with that brokerage firm? What is the significance of having a few customer complaints? There are many questions that will help you make the best decision about who to trust with your savings and investments. Don’t assume because your broker works for a large, established brokerage firm with a well-known name that you are insulated from wrongdoing. We have investigated thousands of complaints and represented hundreds of claims against the largest, most prestigious firms in America. Unfortunately, “the greed of gain has no time or limit” and misconduct can be found in any brokerage firm. Please feel free to contact the Forman Law Firm for a free consultation with regard to investigating your broker, brokerage firm, or registered investment adviser.

Despite FINRA’s Oversight, Customer Arbitrations Seem to Lag Behind, Leaving Many Customers Victimized Without Recovery

However, in light of all of the regulatory and disciplinary actions of FINRA, it reported on 1,831 customer arbitrations. While FINRA may order restitution from brokers or brokerage firms that violate rules that damage customers, FINRA is not charged with representing any individual customer who has suffered because of investment fraud or the misconduct of a broker, and the very best avenue for seeking recovery of losses and damages caused by broker misconduct, unsuitable recommendations, or other claim is to hire a qualified attorney.

Most Brokerage Firms and Investment Advisers Have Insufficient Capital and Carry no Insurance. Have the Forman Law Firm Obtain Their Financial Statements

While the many brokerage firms have substantial capital, and/or carry insurance that will cover certain claims brought by their customers, there are many brokerage firms that have very little capital, and carry no insurance that would cover a claim made by a customer. There is no requirement that these under-capitalized brokerage firms tell you how much capital they have, or whether they carry any insurance. For example, there are many, many brokerage firms that are only required to have $5,000.00 in capital, yet these brokerage firms have no restriction on how much money they can invest for their customers. Thus, a brokerage firm with only $5,000.00 in capital can invest, AND LOSE, millions of dollars for any one client, or for many clients. When a customer of such an under-capitalized firm is faced with a claim for many thousands, or hundreds of thousands of dollars, the brokerage firm itself will not have the capital to compensate the aggrieved customer. Similarly, many of these brokerage firms (and their brokers) don’t carry Errors & Omissions insurance that would potentially provide insurance coverage for the customer’s claim. In that instance, the customer may have suffered damages that simply can’t be recovered from the broker, or the broker dealer. In many of our cases, particularly in cases involving brokerage firms with potentially insufficient capital, we include the brokerage firm owners and control persons as Respondents in the case and seek to hold them personally liable for the customer’s damages. Nevertheless, it is always better to invest in an ounce of prevention so you won’t need a pound of cure. In many instances, we can request current financials from your brokerage firm to help you determine whether the firm has the financial capital necessary to safeguard and protect your assets, and the assets of its other customers. Please let the Forman Law Firm investigate your brokerage firm’s financial capabilities before your trust them with your life savings.