Chicago-based Stoltmann Law Offices has represented Morgan Stanley clients who’ve suffered losses as a result of fraudulent or negligent misconduct by Morgan Stanley and the firm’s financial advisors.
Here is a simple question too many investors do not know the answer to: Can brokers decide on their own when to buy or sell an investment in your account? Answer: Not unless you give them written permission to do so. If brokers ignore your instructions, you can file an arbitration claim and be awarded damages. Joan A. Rudnick and an entity owned by her, Oak Trail Associates, filed a claim against her broker, Morgan Stanley, in October 2020. The claim charged the broker with “unauthorized trading, breach of contract and duty of loyalty, unjust enrichment and conversion,” according to Investment News.
Rudnick’s claim was filed when her broker sold Apple stock in her portfolio against her wishes. A retiree in her late 70s, Rudnick “had held the Apple stock for a long time and did not intend to sell it,” her attorney told Investment News. “She had put a no-trade restriction on the stock, but it was sold around March 2019. Morgan Stanley acknowledged the shares were sold without Rudnick’s authorization.” Rudnick was awarded “$482,000 in compensatory damages, $83,372 in federal and state taxes, $45,000 in attorneys’ fees, $25,000 in brokerage fees, $5,000 in expert fees, $1,863 in costs and $375 for a non-refundable filing fee.” A Morgan Stanley spokesperson declined to comment to Investment News. “The arbitration award states the firm denied the allegations in the FINRA statement of claim and asked that it be dismissed in its entirety.” FINRA is the federal securities regulator that handles arbitration claims for investors.
When brokers buy or sell holdings in your portfolio, they can only do it with your explicit permission – unless you give them “discretionary” authority to trade at will. In that case, a written trading authorization signed by the client, the financial advisor, and usually his or her supervisor, is required as part of the file. This “discretionary” model has its perks, including the imposition of a fiduciary duty as a matter of law. It also inevitably leads to putting too much stock in the abilities and knowledge of one financial advisor to make the right moves.
Financial Advisors are bound by rules that require them to adhere to FINRA suitability rules based on the investor’s age and risk tolerance. Brokers are obligated to manage your money in your best interest too. However, these rules are often broken as firms broadly interpret these guidelines since they can earn generous commissions trading securities that are loaded with additional fees. Remember that each time brokers buy or sell an investment in your account, it generates income for them – and their firms — even if those investments may not align with your long-term financial planning goals and risk tolerance.
If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!