Recommendations and transactions made by stockbrokers on behalf of their customers can be categorized as either solicited or unsolicited. Understanding these categories is crucial for investors to navigate the complexities of trading and investment strategies effectively.
- Solicited trades are transactions that a broker recommends to a client or provides information or research on when an investment is discussed with a client. For example, if a broker analyzes market trends and suggests purchasing a specific stock based on its potential growth, this would be considered a solicited trade.
- Unsolicited trades are initiated by the client, who requests that the financial advisor execute them. An example of this would be a client who believes strongly in a particular company’s future and instructs their broker to buy its shares without any advice or recommendation from the broker.
Why is The Distinction Between Solicited and Unsolicited Important?
If a solicited trade results in substantial investment losses, the investor may hold the broker or brokerage firm accountable. For instance, if a broker recommended a stock that subsequently plummeted in value, the investor could seek recourse. Another example of a recommended trade deemed solicited is when the broker acts with discretion. If a broker trades without seeking prior permission or consent from the client, the broker is deemed to have acted using discretion and bears full responsibility for the investment. This accountability is essential for maintaining trust in the broker-client relationship.
By contrast, if a client initiated an unsolicited trade — holding the broker responsible for losses can be more difficult. Since the client made the decision without the broker’s recommendation, proving negligence or misguidance on the part of the broker becomes a more challenging task for the investor.
The Role of FINRA Rule 2010
FINRA Rule 2010 requires brokers to accurately report whether a transaction was solicited or unsolicited. Correctly marking a trade is an essential record-keeping responsibility of a brokerage firm. Unfortunately, some brokers and firms may wrongly mark solicited trades as unsolicited to try to avoid responsibility. This misclassification can have serious legal ramifications and impact the investor’s ability to seek damages.
Unsuitability and FINRA Rule 2111
Whether a trade is solicited or unsolicited can also impact claims under FINRA Rule 2111. This rule mandates that brokers only recommend suitable investments for a client’s risk tolerance and profile. If a solicited trade was unsuitable and led to significant losses, an investor may have a stronger case to recover damages through arbitration. For example, if a broker recommended a high-risk investment to a conservative investor, this could be grounds for a claim.
If you have Questions Concerning Whether a Trade Was Solicited or Unsolicited, Seek Legal Counsel
Regardless of whether your losses stem from solicited or unsolicited trades, pursuing such a claim without legal assistance can be challenging. Bakhtiari & Harrison’s experienced investment fraud lawyers can help guide you through the process, ensuring that your rights are protected and advocating for you throughout legal proceedings.
Bakhtiari & Harrison is an AV-rated, experienced law firm focused on the worldwide representation of clients in complex arbitration, litigation, and related legal services in securities industry matters. Our team is well-versed in the intricacies of both solicited and unsolicited trades and their implications.
The firm’s partners have extensive experience in securities, employment, and regulatory matters. Our focus is on delivering strategic and creative client-centric solutions tailored to meet the unique needs of each client.
We represent high-net-worth individuals, institutions, and hedge funds in securities arbitration and litigation claims before FINRA (Financial Industry Regulatory Authority), AAA (American Arbitration Association), other arbitration providers, and state and federal courts. Our commitment to our clients in the securities industry extends to ensuring clarity around the nature of trades, whether solicited or unsolicited.