Brokerage Firm Failure to Supervise the Activities of Each Stock Broker & Financial Adviser
Under FINRA Rules, each brokerage and financial advisory firm that is a FINRA member must “design and implement written procedures” in order to properly and effectively supervise the activities of each of its financial advisors, stockbrokers, and other employees. When an individual stockbroker or financial advisor is negligent or acts in an improper manner against the interests of the client and that client suffers damages as a result of such wrongdoing, the firm may be held liable for the investor’s losses.
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There are also instances in which a brokerage firm may be held liable for failure to supervise without the individual broker or advisor being held responsible for damages. Stockbrokers are required to complete standardized training and pass exams administered by their regulator, FINRA. If it is found that a brokerage firm did not properly train a broker or advisor, or did not ensure the broker obtained the necessary licenses, or furnished the broker or advisor with incomplete information, the brokerage firm alone may be liable for damages caused by the broker or advisor’s negligence or misconduct. Additionally, brokerage firms are responsible for conducting due diligence on the investment and securities products they sell. They are required to develop written supervisory policies and procedures to achieve compliance with state and federal securities laws.