Keeping Brokers Out Of Legal Pinches

It goes almost without saying that a broker’s obligation is to work on behalf of the customers. That means understanding the customers’ objectives and risk tolerance and acting consistent with that understanding. Even when you follow those basic tenets, however, and even if you are entirely well-intentioned, you can still become the subject of complaints. The first goal is to attempt to avoid such issues altogether.

A client early on may express discomfort with the manner in which investments are being allocated. I have been involved in cases where a broker’s clients sent them e-mails fairly early in the investment relationship, when there were no losses, expressing concern about their broker. Obviously such a communication is a red flag for a broker not to ignore but a signal to engage with the client.

A broker who invests a client’s funds in a variety of mutual funds should consult with the clients and explain the long-term nature of mutual funds. If the client’s goals are not in line with such a time frame, the advisor should advise them to sell the funds and to document their goals. It’s worth it to avoid a potential claim.

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