The specific duties that a broker owes to his or her customer will depend on a number of different factors, including the specific terms of the account agreement signed by the customer, the nature of the brokerage account opened by the customer, and the state (or states) in which the broker, the customer, and the brokerage account are located.
Nevertheless, most courts have generally held that when a customer’s brokerage account is “non-discretionary” — that is, the broker does not have discretion to buy or sell securities in the account without the investor’s prior authorization — the broker owes, at a minimum, the following duties to his customer:
- the duty to recommend an investment only after studying it sufficiently to become informed as to its nature, price, and financial prognosis;
- the duty to perform the customer’s orders promptly in a manner best suited to serve the customer’s interests;
- the duty to inform the customer of the risks involved in purchasing or selling a particular security;
- the duty to refrain from self-dealing;
- the duty not to misrepresent any material fact to the transaction; and
- the duty to transact business only after receiving approval from the customer.
Where the customer’s account is “discretionary” — that is, the broker does have discretion to buy or sell securities in the account without talking to the investor first — courts have generally held that the broker owes, at a minimum, all of the duties listed above plus the following four additional duties to his customer:
- the duty to manage the account in a manner directly comporting with the needs and objectives of the customer as stated in the authorization papers or as apparent from the customer’s investment and trading history;
- the duty to keep informed regarding the changes in the market which affect the customer’s interest and act responsively to protect those interests;
- the duty to keep the customer informed as to each completed transaction; and
- the duty to explain forthrightly the practical impact and potential risks of the course of dealing in which the broker is engaged.
If you have any questions about the duties your broker owed you and/or whether he (or she) might have violated any of those duties, contact Jacobson Law P.A.