Like any other professional, such as a doctor, lawyer, or architect, a stockbroker can commit negligence, also known as malpractice, in furnishing their services to a client. A professional such as a stockbroker can commit negligence or malpractice when their service to a client fails to comply with the applicable standard of care in furnishing services to a client. 

The Basics of Negligence

Proving a claim of negligence requires establishing the four elements of negligence: duty, breach, causation, and damages. Duty refers to the duty of care that the allegedly negligent party owes to the allegedly injured party. Breach is the actions or omissions that the allegedly negligent party committed that failed to comply with their duty of care to the injured party. Causation looks at whether the allegedly negligent party’s breach of their duty of care was directly and proximately responsible for causing injury to the claimant -- in other words, the injury would not have happened but for the allegedly negligent party’s conduct and there was no other intervening cause more responsible for the injury. Damages refers to losses that the injured party can be financially compensated for. Without establishing all four elements, an injured party does not have a legal claim for negligence or malpractice.

In most stockbroker negligence claims, the case focused on the exact duty owed to the stockbroker’s client, whether the stockbroker compiled with their duty, and whether the client suffered losses due to the stockbroker’s conduct that the client can be financially compensated for. 

Examples of Stockbroker Malpractice

Stockbrokers are generally engaged in advising clients as to what investments the client should put their money in. In most cases, the law says that stockbrokers owe a fiduciary duty to their clients, which imposes a high standard of care in the stockbroker’s dealings with a client. Generally speaking, a stockbroker’s fiduciary duty requires them to place the client’s interests above that of the stockbroker’s professional or personal interests. In some cases, a stockbroker may only owe a client a duty of suitability, which is not as strict as fiduciary duty, meaning that the broker must advise only those investments suitable for the client’s goals and purposes. Finally, stockbrokers always owe a duty of reasonable care, which simply involves avoiding unreasonable behavior that would be likely to put a client at risk of financial loss. 

Examples of conduct that would breach the duties stockbrokers owe to clients and may constitute malpractice include:

  • Failing to conduct due diligence on prospective investments
  • Recommending investments that are scams or frauds, if the stockbroker knew the investments were a scam or would have discovered their fraudulent nature through reasonable diligence
  • Failing to adequately diversify a client’s investment portfolio or otherwise take steps to help a client minimize losses from the failure of any one investment
  • Misrepresenting details about a proposed investment
  • Churning, or conducting excessive trades on a client’s account for the purpose of generating fees earned by the stockbroker. 

Establishing a Claim of Stockbroker Malpractice

Depending on the particular conduct alleged, establishing a claim of stockbroker negligence may require a client to prove that the stockbroker either intended to cause harm to the client or consciously disregarded a substantial risk that the client would be harmed. However, most malpractice claims do not require the client to prove that the stockbroker intended to defraud or otherwise harm a client, only that the stockbroker did something that does not comply with the applicable standard of care and the client was harmed by that conduct.

Contact A Stockbroker Malpractice Attorney for a Consultation About Your Case in New Jersey

Were you or a loved one the victim of stockbroker malpractice in New Jersey? Then you need to talk to an experienced stockbroker malpractice lawyer as soon as possible for guidance on how to proceed. The Rochelle Park stockbroker malpractice attorneys at The Epstein Law Firm, P.A.  are prepared to assist you with your legal claim. We represent victims of negligent stockbrokers throughout New Jersey, including Hackensack, Teaneck, Fort Lee, and Fair Lawn. Call us today at 201-231-7847 or fill out our online contact form to schedule a consultation. Our main office is located at 340 West Passaic Street, Rochelle Park, NJ 07662.

The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.