Failure to Supervise the Activities of Each Stock Broker & Financial Adviser
Under FINRA Rules, each brokerage firm must “design and implement written procedures” in order to properly and effectively supervise the activities of each of its financial advisors, brokers, and other employees. When an individual broker 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. Brokers are required to complete standardized training and pass exams administered by the FINRA. If it is found that a brokerage firm did not properly train a broker or advisor, 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 securities products they sell and developing a written supervisory system to achieve compliance with the securities laws.