Negligence is a broad legal concept. Certainly you've heard the term used in the context of medical malpractice or legal malpractice. Negligence may also make its way into casual conversation when describing, for example, excessively bad parenting. In the context of the financial industry, brokerage firms, and financial advisors, establishing negligence turns on two key issues. In order to be considered negligent, a brokerage or individual broker must: 

  1. act in a manner that fails to comply with industry standards as set for by FINRA (Financial Industry Regulatory Authority

  2. act in manner that fails to reflect the prudent behavior of a reasonable individual or professional

The former is the most common instance of negligence as it pertains to investing. But underlying "industry standards" are certain common sense rules and regulations designed to protect investors from self-interested, rapacious, and/or deceptive financial advisors who have a fiduciary and legal obligation to protect their clients interests.

That means that, in a way, point 2 is subsumed in point 1, since industry standards generally describe and enforce "prudent behavior of a reasonable individual or professional." In other words, it's hard to act without prudence or reason and not afoul of some FINRA rule or regulation.

Negligence in the Context of Securities Disputes

 But negligence is also a useful concept in situations where deceptive practices by brokers do not easily fall into common illegal or fraudulent schemes such as churningunsuitabilityponzi schemes, and unauthorized trading. Negligence covers all of these well-established nefarious schemes and many more besides, while remaining open for new innovations in the old practice of bamboozling people out of money. 


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If you or anyone you know has been the victim of broker misconduct or investment fraud, please contact our experienced securities litigation team immediately at 1-855-462-3330 or by using our online contact form.