Standards may prevent broker misconduct


Brokers face the temptation of acting in their self-interest by placing their commissions above the interests of their clients. Selling excessively risky products, for example, may be lucrative to brokers even though their clients should seek lower-risk alternatives.    

Unethical behavior

Ethical guidelines can help combat typical broker misconduct. Unethical behavior usually includes inadequate communication, misleading investors or doing an inadequate job.

Telling half-truths or sharing misinformation is classic misbehavior. Not telling the full truth, as opposed to lying, can still harm investors.

Inadequate explanations and having uniformed clients can cause other problems. This is often done by using technical jargon or speaking above the investors’ heads.

The discrete silence is the inadequate explanation’s cousin. This occurs when the broker does not explain the downside of an investment.

Failure to offer alternatives is also unethical conduct that may be harmful to inexperienced clients. Investors should present several investment options even if the offer is suitable.

Ethical guidelines

Brokers engage in ethical behavior when explaining anything that an investor may need or want to know. This should occur even if it puts the investment deal at risk.

Brokers should establish a portfolio tailored to the investor’s circumstances, needs and preferences. Communications to clients need to be customized for their situation.

Brokers should not assume what the client knows. The product’s risks in relation to its anticipated returns should be explained to investors. Brokers need to explain how assets and risks work.

Brokers also must discuss general market conditions and specific asset classes with investors. They need to share information on whether the market is over or underpriced.

Brokers must tell their clients how often their investments will be monitored and what this involves. Brokers and investors can develop a plan that addresses the client’s needs.

In addition to sending reports to clients, brokers must discuss the report’s main points. They should assure that investors understand the investment’s major elements and the meaning of the report’s text, especially when it contains technical terms.

Additionally, investors are typically unaware of the meaning and consequences of long-term and short-term investments or differences between investment styles such as value and growth. An adequate explanation of these concepts is an essential brokering practice.

Attorneys can assist investors with recouping their losses caused by an unethical broker. They can also represent them in court or at arbitrations.