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Updated by Jacob Zamansky on Jul 18, 2017
Headline for 7 Signs that Your Broker or Investment Advisor May Not Have Your Best Interests in Mind
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7 Signs that Your Broker or Investment Advisor May Not Have Your Best Interests in Mind

As an individual investor, you should consistently monitor your investment portfolio’s performance. You should also understand your rights and obligations as an investor, and you should know how to spot the warning signs of broker and investment advisor fraud. Here are some of the most-common examples of fraud and misconduct that can lead to substantial investment losses:



Diversification is critical to minimizing the risk of sudden and substantial losses, and the opposite of diversification is overconcentration. If your financial advisor has overconcentrated your portfolio in a single investment product or industry, you may be entitled to recover your losses through securities arbitration.


Unsuitable Investments

When you receive investment recommendations, they should be tailored to your personal risk preferences and investment objectives. If your broker or investment advisor has recommended investment products or made investments that are not suited to your investor profile, this may constitute fraud or misconduct.


Unauthorized Trades

SEC and FINRA rules require brokers and investment advisors to obtain authorization before making any trades on an investor’s behalf. While investment professionals can (and often do) obtain limited discretion to make investment decisions for their customers, there are still strict requirements and limitations when it comes to providing disclosures and taking action without direct investor approval.


Account Churning

Account churning is the practice of making an excessive number of trades solely for the purpose of generating commissions. While some instances of account churning are blatant, others can be more nuanced and difficult to detect. When reviewing your account statements, watch for unusually-large numbers of trades, and see how your portfolio’s performance compares to the fees collected by your broker or advisor.


Failure to Execute Trades

In some cases, brokers and investment advisors will fail (or refuse) to execute a trade when buying or selling would be in the customer’s best interests. Failures due to oversight and intentionally withholding orders for personal gain are both forms of misconduct that can support claims for financial recovery.


Failure to Disclose Material Information

Brokers and investment advisors owe affirmative obligations to disclose material investment information to their customers. If your broker or advisor is withholding information about investment “opportunities” or about the status of your portfolio, these are both potential red flags for investment fraud.


Affirmative Misrepresentations

Beyond withholding material information, some brokers and advisors will also make affirmative misrepresentations to their customers. If you have recently discovered that information you received from your broker or advisor was inaccurate, you should speak with an experienced investment fraud attorney as soon as possible.