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Broker Misconduct

Broker Misconduct

An investment portfolio that’s too heavily invested in one asset type, class, or sector is inherently risky and could lead to catastrophic losses in the event of a downturn. If a financial adviser or brokerage firm does not sufficiently diversify an investor’s assets and the investor suffers losses as a result, he or she may have a claim for misconduct. If you are seeing this type of activity in your account (or a loved one’s), you should call a securities lawyer quickly to discuss your options.


“Overconcentration” is an investment term which expresses the old adage, “don’t put all your eggs in one basket.”

Examples of overconcentration include an account that is invested only in:

  • One stock or a few different stocks
  • A single sector of the economy (i.e. investing only in gold or precious metals)
  • One investment asset class (such as purchasing just stocks, rather than stocks and mutual funds)

Without a portfolio spread across multiple investment avenues, the investor could faces dire economic consequences. For example, if an investor puts all her money in a single startup company, and the company goes out of business, the investor loses 100% of her account.


Many investors trust a financial adviser, who is expected to get to know the investor and make suitable investment recommendations based on the investor’s profile (so-called “suitability”).

A crucial aspect of an investor’s profile is their willingness to make risky investments. While some investors can afford the risk of a heavily concentrated portfolio, others cannot. Financial advisers should take into account an investor’s stance on risk when devising an investment strategy.

Unfortunately, an investor may not know that their investment portfolio is overconcentrated. A portfolio might look diversified on the surface, but at a deeper level it could be heavily concentrated in a single sector or among undiversified stocks.

An overconcentrated position is often only revealed after heavy investment losses. In the event of broker misconduct, lost money is recoverable through a legal claim.

If you believe your losses are the result of overconcentration, a lawyer can help you discover whether your adviser made unsuitable investments.


In most cases, financial advisers must obtain client permission before executing a trade in the client’s account.

The unauthorized purchase or sale of securities by a financial adviser in a customer’s account without the customer’s prior knowledge and authorization could constitute unauthorized trading—a securities law violation.

Unauthorized trading is a time-sensitive issue that should be promptly discussed with a securities attorney.


When investors open an account for a securities firm’s brokerage services, they may give their broker a limited power of attorney that permits the broker to execute trades on the investor’s behalf. This is known as a discretionary account.

A non-discretionary account, on the other hand, typically requires an investment professional to obtain the client’s consent prior to each transaction.

Discretionary and non-discretionary, however, usually are not absolute designations. The adviser and client are free to negotiate a more nuanced arrangement. A client with a discretionary account, for example, may only give the adviser limited autonomous trading authority up to a certain monetary amount.

Regardless of the adviser’s autonomy level, the adviser must execute trades that are suitable for the client based on the client’s financial strategy. A discretionary account does not give the advisor free reign to make inappropriate trades.


Early detection is key in ameliorating unauthorized trading. If you wait too long to raise unauthorized trading accusations, it may give the impression that you gave tacit consent to the trades executed in your account. The sooner you raise a complaint, the better your chance of successfully challenging the unauthorized transaction(s).

With that in mind, here are some ways to protect against unauthorized trading:

  • Perform a broker background check. Look for red flags such as disciplinary action and customer complaints.
  • Make sure that you and your adviser are on the same page when discussing a transaction.
  • Keep notes on all conversations you have with a broker.
  • Read your monthly account statements, confirmations, and other important account documents as soon as they are available, and always retain documents for future reference.
  • Take immediate action if you spot an unauthorized transaction in your account. Contact the brokerage firm right away and point out the discrepancy. You should also get in touch with a securities litigation attorney.


If unauthorized trading results in investor losses, the investor can pursue a lawsuit or arbitration claim that seeks the recovery of damages.

The damages may be out-of-pocket expenses, losses incurred from an unauthorized trade, or market gains that would have been experienced in the absence of an unauthorized trade.

Free Initial Consultation with Securities Lawyer

When you need legal help with a Securities Law issue, please call Ascent Law for your free consultation (801) 676-5506. We will help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506